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Adverse economic and market conditions and other events or conditions throughout the world could negatively impact our business in many ways, including by reducing the value or performance of the investments made by our investment funds and reducing the ability of our investment funds to raise capital, any of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.
−Removed: Our business is materially affected by conditions in the global financial markets and economic conditions or events throughout the world that are outside of our control, including, but not limited to, changes in interest rates, availability of credit, inflation rates, economic uncertainty, slowdown in global growth, changes in laws (including laws relating to taxation and regulations on the financial industry), disease, pandemics or other severe public health events, trade barriers, commodity prices, currency exchange rates and controls, national and international political circumstances (including government shutdowns, wars, terrorist acts or security operations), geopolitical tensions, social unrest, supply chain pressures, and the effects of climate change.
−Removed: Recently, markets have been affected by the COVID-19 pandemic, U.S.
−Removed: interest rates, inflation, heightened geopolitical tensions (including those between the U.S.
−Removed: and China and between Russia and Ukraine), the imposition of trade barriers, ongoing trade negotiations with major U.S.
+Added: Our business and the businesses of the companies in which we invest are materially affected by conditions in the global financial markets, and economic conditions or other events throughout the world that are outside of our control, including, but not limited to, changes in interest rates, availability and cost of credit, inflation rates, availability and cost of energy, economic uncertainty, slowdown in global growth, changes in laws (including laws relating to taxation and regulations on the financial industry), disease, pandemics or other severe public health events, trade barriers, commodity prices, currency exchange rates and controls, national and international political circumstances (including government shutdowns, wars, terrorist acts or security operations), geopolitical tensions and instability, social unrest, supply chain pressures, and the effects of climate change.
+Added: Over the last several years, markets have been affected by the COVID-19 pandemic, significant increases in U.S.
+Added: interest rates, inflationary pressures, heightened geopolitical tensions (including those between the U.S.
+Added: and China, China and Taiwan, and between Russia and Ukraine), the imposition of export controls and trade barriers, the imposition of economic and political sanctions (upon specific individuals or companies and country, industry and sector wide restrictions), ongoing trade negotiations with major U.S.
trading partners and changes in U.S.
tax regulations.
+Added: In this respect, our investment funds focused on Asia, and portfolio companies within non-Asia investment funds with significant operations or connectivity and reliance on Asia companies, and listed securities or debt instruments of companies or industries, could be impacted by any disruptions to the global supply chain that may result from escalating tensions, disputes or potential conflicts in the region surrounding the Taiwan Strait.
+Added: The resulting actions taken, the response of the international community and other factors affecting trade with China or political or economic conditions in Taiwan could disrupt the manufacture of multiple business critical products or hardware components, including specifically semiconductors and these events may impact entire sectors and industries regardless of their business proximity to the Taiwan Strait.
+Added: For example, in the event that such conditions impact suppliers, contract manufacturers, logistics providers, and/or distributors, this could lead to adverse business and trading conditions, including material and long-term increases in the cost of materials, higher shipping and transportation rates, material impact or delays on the delivery of products to and from impacted regions, which could adversely affect the business and operations of portfolio companies within and outside Asia, including their revenues and financial results.
These conditions, events, and factors are outside our control and may affect the level and volatility of securities prices and the liquidity and the value of investments, and we may not be able to or may choose not to manage our exposure to them.
In the event of a market downturn, each of our businesses could be affected in different ways.
−Removed: Over the twelve months ending December 31, 2021, the S&P 500 increased by 27%, while the MSCI All Country World Index (MSCI) rose by 17%.
−Removed: While global markets performed well in the aggregate, developments such as rapidly rising inflation, shifting views on monetary policy, and regulatory actions, drove spikes of volatility and strong rotations out of certain assets which had previously outperformed in 2020.
−Removed: For example the CSI 300 Index fell by 5% in 2021 after strongly outperforming the S&P 500 in 2020, as market participants reacted to government regulatory crackdowns on private enterprise and debt troubles in the property sector.
−Removed: markets, interest rate volatility adversely affected the equity performance of companies with longer-duration cash flows;
−Removed: prices of companies in the Nasdaq 100 with no profits fell 20% in 2021, compared with a +27% return for the overall index.
−Removed: Many of these factors, including inflation, interest rates, regulatory and political environments, can be unpredictable so it is possible investor sentiment could change quickly in the future and market volatility could reemerge in the face of negative macro or geopolitical developments.
+Added: Over the twelve months ending December 31, 2022, the S&P 500 fell by 19.4%, while the MSCI All Country World Index (MSCI) fell by 19.8%.
+Added: Global markets struggled in the face of rapidly rising inflation, a sharp and hawkish shift in monetary policy, and geopolitical concerns such as Russia’s invasion of Ukraine and China’s rolling pandemic-related restrictions.
+Added: Market losses are concentrated at both ends of the risk spectrum where valuations have been richest.
+Added: The prices of speculative equities most exposed to interest rate risk—namely, those of companies with cash flows weighted far into the future—were down 40% in 2022;
+Added: at the same time, low risk investment grade bonds were down 19% as well.
+Added: In general, higher interest rates have negative implications for (1) fixed rate bond markets and (2) tech and high growth sector assets.
+Added: In both cases, higher discount rates negatively impact the value of future cash flows.
+Added: Factors that impact global markets, including inflation, interest rates, regulatory and political environments, can be unpredictable and investor sentiment could change quickly in the future while market volatility could accelerate in the face of negative macro or geopolitical developments.
If global markets become unstable, it is possible sellers may readjust their valuations and attractive investment opportunities may become available.
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If the value of an investor’s portfolio decreases as a whole, the amount available to allocate to alternative assets (including private equity) could decline.
−Removed: Further, investors often evaluate the amount of distributions they have received from existing funds when considering commitments to new funds.
+Added: In addition, investors often evaluate the amount of distributions they have received from existing funds when considering commitments to new funds.
Investors may also weigh the likely impact of geopolitical tensions, cross-border regulations and other factors such as general market volatility and/or a reduction in distributions to investors when considering their allocations to new investment funds.
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The availability and cost of financing for significant acquisition and disposition transactions could be impacted if equity and credit markets experience heightened volatility.
−Removed: For example, in the United States, high yield credit spreads rose by nearly 750 basis points (bps) during the first quarter of 2020 on fears around the economic impact of the COVID-19 pandemic.
−Removed: If credit markets weaken again in the future, it is possible that we and our investment funds may not be able to consummate significant acquisition and disposition transactions on acceptable terms or at all if we or our funds are unable to finance these types of transactions on attractive terms or if the counterparty to the transaction is unable to secure suitable financing.
−Removed: If there is a general slowdown in global merger and acquisition activity due to the lack of availability of suitable financing or an increase in risk aversion and uncertainty, this could cause a slowdown in our investment pace, which in turn could have an adverse impact on our ability to generate future performance revenues and to fully invest the available capital in our funds and reduce opportunities to exit and realize value from our fund investments.
+Added: For example, in the United States, equity market volatility persisted throughout 2022, as relentlessly high inflation readings motivated the U.S.
+Added: Federal Reserve to aggressively increase short-term interest rates.
+Added: Over the twelve months ending December 31, 2022, 10-year Treasury yields rose 235 basis points (bps) and high yield credit spreads widened by 265 bps and obtaining financing in both the high yield bond market and the leveraged loan market is currently challenging.
+Added: If credit markets weaken further in the future, it is possible that we and our investment funds may not be able to consummate significant acquisition and disposition transactions on acceptable terms or at all if we or our funds are unable to finance these types of transactions on attractive terms or if the counterparty to the transaction is unable to secure suitable financing.
+Added: Global merger and acquisition volume totaled $3.8 trillion in 2022, a 36% decline from 2021.
+Added: If there is a continued slowdown in global merger and acquisition activity due to the lack of availability of suitable financing or an increase in risk aversion and uncertainty, this could cause a slowdown in our investment pace, which in turn could have an adverse impact on our ability to generate future performance revenues and to fully invest the available capital in our funds and reduce opportunities to exit and realize value from our fund investments.
A slowdown in the deployment of our available capital could impact the management fees we earn on those carry funds and managed accounts that generate fees based on invested (and not committed) capital.
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foreign investment, trade, taxation, economic, environmental and other policies under the current Administration, as well as the impact of geopolitical tension, such as a deterioration in the bilateral relationship between the U.S.
−Removed: and China or an escalation in conflict between Russia and Ukraine, could lead to disruption, instability and volatility in the global markets, which may also have an impact on our exit opportunities across negatively impacted sectors or geographies.
+Added: and China or a further escalation in conflict between Russia and Ukraine, could lead to disruption, instability and volatility in the global markets, which may also have an impact on our exit opportunities across negatively impacted sectors or geographies.
The consequences of previously enacted legislation could also impact our business operations in the future.
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Such changes could materially increase the taxes imposed on us or our funds’ portfolio companies.
−Removed: See “—Risks Related to Taxation—Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could negatively impact our effective tax rate and tax liability.” In addition, negative public sentiment could lead to heightened scrutiny and criticisms of our business and investments.
+Added: See “Risks Related to Taxation—Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could negatively impact our effective tax rate, tax liability and/or the performance of certain funds should unexpected taxes be assessed to portfolio investments (companies) or fund income.” In addition, negative public sentiment could lead to heightened scrutiny and criticisms of our business and investments.
During periods of difficult market conditions or slowdowns (which may occur across one or more industries or geographies), our funds’ portfolio companies may experience adverse operating performance, decreased revenues, financial losses, credit rating downgrades, difficulty in obtaining access to financing and increased funding costs.
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During such periods of weakness, our funds’ portfolio companies may also have difficulty expanding their businesses and operations or meeting their debt service obligations or other expenses as they become due, including expenses payable to us.
−Removed: Furthermore, such negative market conditions could potentially result in a portfolio company entering bankruptcy proceedings, or in the case of certain real estate funds, the abandonment or foreclosure of investments, thereby potentially resulting in a complete loss of the fund’s investment in such portfolio company or real assets and a significant negative impact to the fund’s performance and consequently our operating results and cash flow, as well as to our reputation.
−Removed: In addition, negative market conditions would also increase the risk of default with respect to investments held by our funds that have significant debt investments, such as our Global Credit funds.
−Removed: Finally, during periods of difficult market conditions or slowdowns, our fund investment performance could suffer, resulting in, for example, the payment of less or no performance revenues to us or the creation of the obligation to repay performance revenues previously received by us.
+Added: In addition, such negative market conditions could potentially result in a portfolio company entering bankruptcy proceedings, or in the case of certain real estate funds, the abandonment or foreclosure of investments, thereby potentially resulting in a complete loss of the fund’s investment in such portfolio company or real assets and a significant negative impact to the fund’s performance and consequently our operating results and cash flow, as well as to our reputation.
+Added: Negative market conditions could also increase the risk of default with respect to investments held by our funds that have significant debt investments, such as our Global Credit funds.
+Added: Moreover, as capital markets activity slows, we may experience a corresponding reduction in the capital markets fees we earn through Carlyle Global Capital Markets (“GCM”) in connection with activities related to the underwriting, issuance and placement of debt and equity securities.
+Added: Finally, during periods of difficult market conditions or slowdowns, the valuations of the investments in our carry funds could suffer.
+Added: If we were to realize investments at these lower values we may not achieve investment returns in excess of return hurdles required to realize performance revenues or we may become obligated to repay performance revenues previously received by us.
The payment of less or no performance revenues could cause our cash flow from operations to significantly decrease, which could materially and adversely affect our liquidity position and the amount of cash we have on hand to conduct our operations and to dividend to our stockholders.
The generation of less performance revenues could also impact our leverage ratios and compliance with our term loan covenants.
−Removed: Having less cash on hand could in turn require us to rely on other sources of cash (such as the capital markets, which may not be available to us on acceptable
−Removed: terms or at all) to conduct our operations, which include, for example, funding significant general partner and co-investment commitments to our carry funds.
−Removed: Furthermore, during adverse economic and market conditions, we might not be able to renew or refinance all or part of our credit facility or find alternate financing on commercially reasonable terms.
+Added: Having less cash on hand could in turn require us to rely on other sources of cash (such as the capital markets, which may not be available to us on acceptable terms or at all) to conduct our operations, which include, for example, funding significant general partner and co-investment commitments to our carry funds.
+Added: In addition, during adverse economic and market conditions, we might not be able to renew or refinance all or part of our credit facility or find alternate financing on commercially reasonable terms.
As a result, our uses of cash may exceed our sources of cash, thereby potentially affecting our liquidity position.
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The World Health Organization designated COVID-19 as a pandemic, and numerous countries, including the United States, declared national emergencies with respect to COVID-19.
−Removed: While vaccines have been approved and are being deployed, the global impact of the outbreak continues to adversely impact many industries and different geographies continue to be impacted by the effects of public health restrictions in various ways.
−Removed: The International Monetary Fund estimates that aggregate output for advanced economies may return to pre-pandemic trend levels in 2022, whereas output for emerging market and developing economies, excluding China, may remain below the pre-pandemic forecast into 2024.
−Removed: The timing and likelihood of achieving widespread global vaccination remains uncertain, and the vaccines may be less effective against new variants, potentially leading people to continue to isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time, further delaying the return of the global economy to pre-pandemic levels.
−Removed: While our fears of a great depression at the onset of the pandemic have not today been realized, the economic recovery is only partially underway, and has been gradual, uneven and characterized by meaningful dispersion across sectors and regions with uncertainty regarding the ultimate length and trajectory.
−Removed: Further, although many jurisdictions had relaxed or lifted restrictions in an effort to generate more economic activity, the risk of continued COVID-19 outbreaks and new variants remains, and jurisdictions have begun to re-impose restrictions in an effort to mitigate risks to public health, especially as more infectious variants of the virus emerge.
−Removed: Increasing infection rates and hospitalizations in certain geographies and a potential resulting market downturn has resulted in COVID-19 continuing to impact our business, financial condition, results of operations, liquidity and prospects.
−Removed: • Portfolio Company Performance.
−Removed: Some of our investments are in industries that have been materially impacted by the effects of COVID-19 and has resulted, and may continue to result in, material reductions in value in certain instances.
−Removed: In particular, many portfolio companies in the energy, infrastructure, healthcare, travel, entertainment, hospitality, and retail industries faced, and some continue to face operational and financial hardships resulting from the spread of COVID-19 and related governmental measures imposed to contain the virus, such as the closure of stores, restrictions on travel, quarantines or stay-at-home orders.
−Removed: If the disruptions caused by the pandemic continue, the businesses of these portfolio companies could suffer materially or become insolvent, which would decrease the value of our funds’ investments and potentially harm our reputation.
−Removed: • Portfolio Company Liquidity.
−Removed: Certain portfolio companies are facing or may face in the future increased credit and liquidity risk due to volatility in financial markets, reduced revenue streams, and limited or higher cost of access to preferred sources of funding, which may result in potential impairment of our or our funds’ equity investments.
−Removed: Changes in the debt financing markets have impacted or may in the future impact, the ability of our portfolio companies to meet their respective financial obligations.
−Removed: In addition, borrowers of loans, notes and other credit instruments in our credit funds’ portfolios may be unable to meet their principal or interest payment obligations or satisfy financial covenants, and tenants leasing real estate properties owned by our funds may not be able to pay rents in a timely manner or at all, resulting in a decrease in value of our funds’ credit and real estate investments and lower than expected returns.
−Removed: In addition, for variable interest instruments, lower reference rates resulting from government stimulus programs in response to COVID-19 has already caused and could lead to lower interest income for our credit funds.
−Removed: • Operational Risks.
−Removed: Travel restrictions, the closure of non-essential businesses and shelter-in-place/stay-at-home orders have made it more difficult and costly for our investment teams to conduct due diligence and consummate the acquisition and disposition of investments for our funds.
−Removed: Our global employee base started working remotely at the start of the pandemic and we transitioned to a hybrid model during 2021, subject to local conditions across our global office locations.
−Removed: Due to the prevalence of highly infectious new variants, we have experienced periods of returning to a fully remote work environment at various times.
−Removed: This extended period of remote working as well as periods of transition between fully remote and hybrid work models by our employees may introduce operational risks, including technology availability and heightened cybersecurity risk.
−Removed: Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic.
−Removed: In addition, our data security, data privacy, investor reporting and business continuity processes could be impacted by a third party’s inability to perform due to COVID-19 or by failures of, or attacks on, their information systems and technology.
+Added: While vaccines have been approved and deployed, the global impact of the outbreak continues to adversely impact many industries and different geographies continue to be impacted by the effects of public health restrictions in various ways.
+Added: The International Monetary Fund estimates that aggregate output for advanced economies may have returned to pre-pandemic trend levels in 2022, whereas output for emerging market and developing economies, excluding China, may remain below the pre-pandemic forecast into 2024.
+Added: The timing and likelihood of achieving widespread global vaccination remains uncertain, and vaccines may be less effective against new variants, potentially leading people to continue to isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time, further delaying the return of the global economy to pre-pandemic levels.
+Added: Many medical and public health experts believe that COVID-19 could occur for years, such as seasonally in the winter, and even if generally ceasing to be fatal for most people, such reoccurrence could increase the possibility of heightened restrictions in business operations.
+Added: Throughout the COVID-19 pandemic, we have been engaged with our employees and adapted to changing circumstances while remaining committed to the health and safety of our employees.
+Added: During the latter part of 2021, we implemented a hybrid return-to-office approach to reintegrate our employees, including new employees who joined Carlyle during the COVID-19 pandemic.
+Added: Employees generally work in the office three days per week, depending on business needs, and work remotely for the balance of the week.
+Added: This hybrid work environment may introduce operational risks, including technology availability and heightened cybersecurity risk.
+Added: Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts.
+Added: In addition, our data security, data privacy, investor reporting and business continuity processes could be impacted by a third party’s inability to perform or by failures of, or attacks on, their information systems and technology.
Our accounting and financial reporting systems, processes, and controls could be impacted as a result of these risks.
−Removed: • Employee-Related Risks.
−Removed: Although our employees have demonstrated their ability to achieve our pre-pandemic levels of productivity while working remotely, COVID-19 continues to present a significant threat to our employees’ well-being and morale.
−Removed: Our key employees or executive officers may become sick or otherwise unable to perform their duties for an extended period of time and we may experience a potential loss of productivity.
−Removed: The same could happen to the employees in our portfolio companies, as well as our third-party service providers.
−Removed: In addition, an extended remote work environment could adversely affect our One Carlyle culture.
−Removed: Our employees continue to collaborate across offices and geographies, but the informal office interactions that contribute to our culture are not as prevalent in a remote work environment and may be lessened even in a hybrid environment due to different employees working in the office on different days of the week.
−Removed: It is also harder to integrate new employees into the firm in a remote working environment.
−Removed: • Regulatory and Litigation Risks.
−Removed: Costly litigation could increase in connection with merger and acquisition transactions, as parties to such transactions explore ways to avoid transactions by the assertion of claims of force majeure, material adverse change in the condition of target investments, and/or fraudulent misrepresentation.
−Removed: • Taxation Risk as a Result of Mobility Challenges.
−Removed: As a result of travel restrictions, stay-at-home orders and similar measures, many of our staff are unable to travel for physical meetings and/or have been displaced working remotely outside of their normal work location.
−Removed: This may create taxable presence or residency risks for our corporate entities and professionals as well as our funds and portfolio companies.
−Removed: Ultimately, these risks could lead to increased levels of taxation and additional compliance complexities.
−Removed: In addition to the foregoing, COVID-19 has exacerbated and may continue to exacerbate, many of the other risks described in this Annual Report on Form 10-K.
−Removed: Changes in the debt financing markets or higher interest rates could negatively impact the ability of certain of our funds and their portfolio companies to obtain attractive financing or re-financing and could increase the cost of such financing if it is obtained, which could lead to lower-yielding investments and could potentially decrease our net income.
−Removed: A significant contraction or weakening in the market for debt financing or other adverse change relating to the terms of debt financing, including higher interest rates and equity requirements and more restrictive covenants, could have a material adverse impact on our business and that of our investment funds and their portfolio companies.
−Removed: Additionally, in recent years many jurisdictions have introduced (or are considering introducing) new restrictions on the deductibility of interest expense, which could negatively impact the financing of new investments or the operations of our funds’ portfolio companies.
−Removed: Regulatory changes that constrain banks’ ability to provide debt financing also could have a material adverse impact on our business and that of our investment funds and their portfolio companies.
−Removed: Additionally, higher interest rates may create downward pressure on the price of real estate, increase the cost and availability of debt financing for the transactions our funds may pursue and decrease the value of fixed-rate debt investments made by our funds.
−Removed: If our funds are unable to obtain committed debt financing for potential acquisitions or are only able to obtain debt financing at unfavorable interest rates or on unfavorable terms, our funds may have difficulty completing acquisitions that may have otherwise been profitable or if completed, such acquisitions could generate lower than expected profits, each of which could lead to a decrease in our net income.
−Removed: Further, if our ability to deduct corporate interest expense is substantially limited, our funds may face increased competition from strategic buyers of assets who may have an overall lower cost of capital or the ability to benefit from a higher amount of cost savings following an acquisition, which could also lead to a decrease in our net income.
−Removed: In addition, rising interest rates, coupled with periods of significant equity and credit market volatility may potentially make it more difficult for us to find attractive opportunities for our funds to exit and realize value from their existing investments.
−Removed: Any failure by lenders to provide previously committed financing can also expose us to potential claims by sellers of businesses that we may have contracted to purchase.
−Removed: Our funds’ portfolio companies also regularly utilize the corporate loan and bond markets to obtain financing for their operations.
−Removed: While credit was available for much of 2020 and 2021 and new debt issuance hit record levels in some markets, the onset of the COVID-19 crisis exhibited how abruptly credit markets can weaken from exogenous shocks and become unavailable or unattractive for issuers.
−Removed: For example, in the first and early second quarters of 2020, corporate debt issuance and merger and acquisition activity decreased significantly as market volatility rose and credit spreads widened.
−Removed: It is possible that during periods of stress, tightening in the credit markets could render debt financing difficult to obtain, less attractive or more expensive.
−Removed: To the extent monetary policy, tax or other regulatory changes or difficult credit markets render such financing difficult to obtain or otherwise less attractive, this may negatively impact the operating performance of our portfolio companies that use debt to fund certain of their operations.
−Removed: This may result in a negative impact on the investment returns of our funds.
−Removed: In addition, to the extent that conditions in the credit markets or tax or other regulatory changes make it difficult or impossible for our investments to refinance or extend maturities on their outstanding debt, either on favorable terms or at all, some of our portfolio companies’ operations may be negatively impacted or our portfolio companies may be unable to repay their debt at maturity or interests when due, and may be forced to sell assets, undergo a recapitalization or seek bankruptcy protection, any
−Removed: of which would also likely impair the value of our funds’ portfolio companies and lead to a decrease in investment income earned by us.
+Added: Moreover, an extended remote work environment could adversely affect our One Carlyle culture.
+Added: While our employees continue to collaborate across offices and geographies, the informal office interactions that contribute to our culture, including integrating new employees into the firm, are not as prevalent in a remote work environment and may be lessened even in a hybrid environment due to different employees working in the office on different days of the week.
Our use of leverage may expose us to substantial risks.
−Removed: We use indebtedness as a means to finance our business operations, which exposes us to the risks associated with using leverage.
+Added: We use indebtedness as a means to finance our business operations, which exposes us to risks associated with using leverage.
We are dependent on financial institutions extending credit to us on reasonable terms to finance our business.
−Removed: There is no guarantee that such institutions will continue to extend credit to us or will renew the existing credit agreements we have with them, or that we will be able to refinance our outstanding notes or other obligations when they mature.
+Added: In this respect, global markets struggled in 2022 in the face of rapidly rising inflation, a sharp and hawkish shift in monetary policy, and geopolitical concerns such as Russia’s invasion of Ukraine and China’s rolling pandemic-related restrictions, all or some of which may lead to challenges in the credit market.
+Added: There is no guarantee that financial institutions will continue to extend credit to us or will renew the existing credit agreements we have with them on as favorable terms or at all, or that we will be able to refinance our outstanding notes or other obligations when they mature.
In addition, the incurrence of additional debt in the future could result in downgrades of our existing corporate credit ratings, which could limit the availability of future financing and/or increase our cost of borrowing.
As borrowings under our credit facility or any other indebtedness mature, we may be required to refinance them by entering into a new facility or issuing additional debt, which could result in higher borrowing costs, or to issue additional equity, which would dilute existing stockholders.
−Removed: We could also repay them by using cash on hand, cash provided by our continuing operations or cash from the sale of our assets, which could reduce dividends to our stockholders.
−Removed: We could have difficulty entering into new facilities or issuing debt or equity securities in the future on attractive terms, or at all.
+Added: In addition, we could repay them by using cash on hand, cash provided by our continuing operations or cash from the sale of our assets, which could reduce dividends to our stockholders.
+Added: We could also have difficulty entering into new facilities or issuing debt or equity securities in the future on attractive terms, or at all.
From time to time, we may access the capital markets by issuing debt securities.
−Removed: In May and June 2021 we issued $500 million aggregate principal amount of 4.625% subordinated notes due May 2061.
−Removed: We also have senior notes with an aggregate principal amount of $1,375 million as of December 31, 2021 as well as a credit agreement that provides a $775 million revolving facility with a final maturity date of February 11, 2024 (see Note 6 to the consolidated financial statements in Part II, Item 8 of this Form 10-K for more information regarding our senior and subordinated notes and credit agreements).
+Added: In 2021, we issued $500 million aggregate principal amount of 4.625% subordinated notes due May 2061.
+Added: We also have senior notes with an aggregate principal amount of $1,375 million as of December 31, 2022, as well as a credit agreement that provides a $1.0 billion revolving facility with a final maturity date of April 29, 2027 (see Note 8 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding our senior and subordinated notes and credit agreements).
The credit agreement contains financial and non-financial covenants with which we need to comply to maintain access to this source of liquidity.
Non-compliance with any of the financial or non-financial covenants without cure or waiver would constitute an event of default, and an event of default resulting from a breach of certain financial or non-financial covenants could result, at the option of the lenders, in an acceleration of the principal and interest outstanding, and a termination of the credit agreement.
−Removed: In addition, to the extent we incur additional debt relative to our current level of earnings or experience a decrease in our level of earnings, our credit rating could be adversely impacted, which would increase our interest expense under our credit facility.
−Removed: Standard & Poor’s and Fitch each reaffirmed their “BBB+” credit rating and revised our rating outlook from stable to positive in October 2021 and November 2021, respectively.
−Removed: A significant contraction in the market for debt financing or other adverse change relating to the terms of debt financing, including likely higher interest rates from Federal Reserve actions and equity requirements and more restrictive covenants, could have a material adverse impact on our business and that of our investment funds and their portfolio companies.
−Removed: Beginning January 1, 2022, U.S.
−Removed: Banks are not allowed to issue any new debt tied to LIBOR.
−Removed: LIBOR will cease to be published at the end of June 2023.
−Removed: Though the Alternative Reference Rates Committee formally recommended the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR, there is uncertainty whether there will be universal adoption.
−Removed: See “—The replacement of LIBOR with an alternative reference rate may adversely affect our credit arrangements and our collateralized loan obligation transactions.”
+Added: addition, to the extent we incur additional debt relative to our current level of earnings or experience a decrease in our level of earnings, our credit rating could be adversely impacted, which would increase our interest expense under our credit facility.
+Added: Standard & Poor’s and Fitch both upgraded our credit rating to “A-” with a stable rating outlook in March 2022 and October 2022, respectively.
+Added: A significant contraction in the market for debt financing or other adverse change relating to the terms of debt financing, including rapidly increasing interest rates from U.S.
+Added: Federal Reserve actions and equity requirements and more restrictive covenants, could have a material adverse impact on our business and that of our investment funds and their portfolio companies.
+Added: Since January 1, 2022, U.S.
+Added: banks have not been allowed to issue any new debt tied to the London Interbank Offered Rate (“LIBOR”), which will cease to be published at the end of June 2023.
+Added: Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.
+Added: financial institutions, formally recommended the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR.
+Added: While we have seen an increase in market acceptance of SOFR, there is no guarantee that this trend will continue.
+Added: See “Risks Related to Regulation and Litigation—The replacement of LIBOR with an alternative reference rate, such as SOFR, may adversely affect our credit arrangements and our collateralized loan obligation transactions.”
Our revenue, earnings and cash flow are variable, which makes it difficult for us to achieve steady earnings growth on a quarterly basis.
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The valuations of investments made by our funds could also be impacted by geopolitical conflict as well as changes, or anticipated changes, in government policy, including policies related to tax reform, financial services regulation, international trade, immigration, environmental, healthcare, labor, infrastructure and energy.
−Removed: For instance, during the first quarter of 2020 with the onset of the COVID-19 pandemic, we recorded significant reductions in the carrying values of many of the investments of the investment funds we advise.
The carrying value of fund investments, particularly the public portion of our carry fund portfolios, may be more variable during times of market volatility.
As of December 31, 2022, 6% of our Global Private Equity and Global Credit carry fund portfolio was in public securities.
−Removed: Transaction fees earned in respect of our carry funds can vary from quarter-to-quarter and year-to-year depending on the nature of the investments in any given period.
−Removed: The recognition of transaction fees can be volatile as they are primarily
−Removed: generated by investment activity within our funds, and therefore are impacted by both the pace and size of our carry fund investments.
−Removed: We anticipate a general decline in net transaction fees earned from our carry funds as our recently raised products have generally increased the percentage of transaction fees that are shared with fund investors from 80% to 100%, such that a larger share of the transaction fee revenue we retain is driven by co-investment activity.
−Removed: In addition, Carlyle Global Capital Markets (GCM) generates capital markets fees in connection with activities related to the underwriting, issuance and placement of debt and equity securities and loan syndication for our portfolio companies and, to a lesser extent, third-party clients.
−Removed: Capital markets fees generated are typically dependent on transaction frequency and volume, and a slowdown in the pace or size of investments by our carry funds could adversely affect the amount of fees generated by capital markets business.
+Added: While the strength of our portfolio construction resulted in outperformance relative to the broader market in 2022, rising interest rates and continued margin contraction, coupled with restrictions on the deductibility of interest expense , may negatively impact the performance and valuation of our portfolio investments and companies going forward.
+Added: GCM generates capital markets fees in connection with activities related to the underwriting, issuance and placement of debt and equity securities and loan syndication for our portfolio companies and, to a lesser extent, third-party clients.
+Added: Capital markets fees generated are typically dependent on transaction frequency and volume, and a slowdown market activity could adversely affect the amount of fees generated by capital markets business.
We are seeking to bolster and grow our capital markets business, and associated fee stream, related to the underwriting, issuance, and placement of debt and equity securities and loan syndication for our portfolio companies and, to a lesser extent, third-party clients, which we expect if successful will positively impact capital markets fees over time.
−Removed: During periods in which a significant portion of our AUM is attributable to carry funds that are in the fundraising period or are in the investment period that precedes harvesting, as has been the case from time to time, we may receive substantially lower distributions.
−Removed: Higher fundraising activity also generates incremental expenses and, as new capital commitments may not immediately generate fees until they activate management fees, we could incur fundraising related costs ahead of generating revenues.
−Removed: Moreover, even if an investment proves to be profitable, it may be several years before any profits can be realized in cash.
−Removed: A downturn in the equity markets also makes it more difficult to exit investments by selling equity securities at a reasonable value.
+Added: We also earn transaction fees in respect of our carry funds that are generally shared with our fund investors.
+Added: The recognition of these fees can be volatile as they are primarily generated by investment activity within our funds, and therefore are impacted by both the pace and size of our carry fund investments.
+Added: Higher fundraising activity may generate incremental expenses and, as new capital commitments may not immediately generate fees until they activate management fees, we could incur fundraising related costs ahead of generating revenues.
+Added: In addition, a downturn in the equity markets may make it more difficult to exit investments by selling equity securities at a reasonable value.
If we were to have a realization event in a particular quarter, that event may have a significant impact on our quarterly results and cash flow for that particular quarter and may not be replicated in subsequent quarters.
We cannot predict precisely when, or if, realizations of investments will occur, where a fund will be in its lifecycle when the realizations occur or whether a fund will realize carried interest.
−Removed: We recognize revenue on investments in our investment funds based on our allocable share of realized and unrealized gains (or losses) reported by such investment funds, and a decline in realized or unrealized gains, or an increase in realized or unrealized losses, would adversely affect our revenue, which could further increase the volatility of our quarterly results and cash flow.
+Added: We recognize revenue on investments in our investment funds based on our allocable share of realized and unrealized gains (or losses) reported by such investment funds, and a decline in realized or unrealized gains, or an increase in realized or
+Added: unrealized losses, would adversely affect our revenue, which could further increase the volatility of our quarterly results and cash flow.
Because our carry funds have preferred investor return thresholds that need to be met prior to us receiving any carried interest, declines in, or failures to increase sufficiently the carrying value of, the investment portfolios of a carry fund may delay or eliminate any carried interest distributions paid to us with respect to that fund.
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As a result of this deferral, we are generally entitled to a disproportionate “catch-up” level of profit allocation at some point during the harvesting period.
−Removed: For example, during the period from late 2013 to early 2015, we benefited from “catch-up” realized carried interest on some of our largest funds, but in 2016 and 2017 we did not benefit from “catch-up” realized carried interest to the extent we had in prior years.
In certain circumstances, we may also need to reduce the rate at which we realize carried interest, or temporarily stop realizing carried interest, in order to maintain a sufficient level of reserves and reduce the risk of potential future giveback obligations.
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In such cases, even when both the predecessor and successor fund have strong performance and earn carried interest, the predecessor fund may substantially exit its investment portfolio before the successor fund is in a sufficient position to begin realizing carried interest.
−Removed: See “—Risks Related to Our Business Operations—Our investors may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable to us than those of our existing funds, which could adversely affect our revenues.”
+Added: See “Risks Related to Our Business Operations—Risks Related to the Assets We Manage—Our investors may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable to us than those of our existing funds, which could adversely affect our revenues.”
Our fee revenue may also depend on the pace of investment activity in our funds.
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As a result, the variable pace at which many of our carry funds invest capital and dispose of investments may cause our management fee revenue to vary from one quarter to the next.
−Removed: Additionally, certain funds derive management fees only on the basis of invested capital whereby the pace at which we make investments, the length of time we hold such investment and the timing of dispositions will directly impact our revenues.
+Added: In addition, certain funds derive management fees only on the basis of invested capital whereby the pace at which we make investments, the length of time we hold such investment and the timing of dispositions will directly impact our revenues.
The investment period of a fund may expire prior to the raising of a successor fund.
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While the total amount of management fees collected over the life of a fund would not be impacted, this could result in a delay in receipt of management fees.
−Removed: We depend on our Chief Executive Officer and other key personnel, and the loss of their services or investor confidence in such personnel could have a material adverse effect on our business, results of operations and financial condition.
−Removed: We depend on the efforts, skill, reputations and business contacts of our senior Carlyle professionals, including our Chief Executive Officer, Kewsong Lee, and other key personnel, including members of the investment committees of our investment funds and senior members of our investment teams, the information and deal flow they and others generate during the normal course of their activities and the synergies among the diverse fields of expertise and knowledge held by our professionals.
−Removed: We entered into an employment agreement with Mr.
−Removed: Lee in October 2017, which was amended in connection with our Conversion in January 2020, and which will expire pursuant to its terms, unless earlier terminated, on December 31, 2022, unless extended or new arrangements are agreed.
−Removed: Our Chief Executive Officer and other key personnel are not obligated to remain employed with us in their current capacities or at all.
+Added: Given our focus on achieving superior investment performance and maintaining and strengthening investor relations, we may reduce our AUM, restrain its growth, reduce our fees or otherwise alter the terms under which we do business when we deem it in the best interest of our investors—even in circumstances where such actions might be contrary to the near-term interests of stockholders.
+Added: From time to time if we decide it is in the best interests of stakeholders, we may take actions that could reduce the profits we could otherwise realize in the short term.
+Added: While we believe that our commitment to treating our investors fairly is in the long-term interest of us and our stockholders, our stockholders should understand we may take actions that could adversely impact our short-term profitability, and there is no guarantee that such actions will benefit us in the long term.
+Added: The means by which we seek to achieve superior investment performance in each of our strategies could include limiting the AUM in our strategies to an amount that we believe can be invested appropriately in accordance with our investment philosophy and current or anticipated economic and market conditions.
+Added: In addition, we may seek to exit or end unprofitable or subscale investments, which may reduce our AUM and/or management fees while generally improving our FRE margins.
+Added: We also may voluntarily
+Added: reduce management fee rates and terms for certain of our funds or strategies when we deem it appropriate, even when doing so may reduce our short-term revenue.
+Added: For instance, in order to enhance our relationship with certain fund investors, we have reduced management fees or ceased charging management fees on certain funds in specific instances.
+Added: In certain investment funds, we have agreed to charge management fees based on invested capital or net asset value as opposed to charging management fees based on committed capital.
+Added: In certain cases, we have provided “fee holidays” to certain investors during which we do not charge management fees for a fixed period of time.
+Added: We also may receive requests to reduce management fees on other funds in the future.
+Added: See “Risks Related to Our Business Operations—Risks Related to the Assets We Manage—Our investors may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable to us than those of our existing funds, which could adversely affect our revenues.”
+Added: Many of our investment funds utilize subscription lines of credit to fund investments prior to the receipt of capital contributions from the fund’s investors.
+Added: As capital calls made to a fund’s investors are delayed when using a subscription line of credit, the investment period of such investor capital is shortened, which may increase the net internal rate of return of an investment fund.
+Added: However, because interest expense and other costs of borrowings under subscription lines of credit are an expense of the investment fund, the investment fund’s net multiple of invested capital will be reduced, as will the amount of carried interest generated by the fund.
+Added: Any material reduction in the amount of carried interest generated by a fund will adversely affect our revenues.
+Added: See “Risks Related to our Company—Adverse economic and market conditions and other events or conditions throughout the world could negatively impact our business in many ways, including by reducing the value or performance of the investments made by our investment funds and reducing the ability of our investment funds to raise capital, any of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.”
+Added: We may also take other actions, including waiving management fees for a particular investment or fund, that could adversely impact our short-term results of operations when we deem such action appropriate.
+Added: Furthermore, we typically delay the realization of carried interest to which we are otherwise entitled if we determine (based on a variety of factors, including the stage of the fund’s life cycle and the extent of fund profits accrued to date) that there would be an unacceptably high risk of potential future giveback obligations.
+Added: Any such delay could result in a deferral of realized carried interest to a subsequent period.
+Added: See “Risks Related to Our Company—Our revenue, earnings and cash flow are variable, which makes it difficult for us to achieve steady earnings growth on a quarterly basis.”
+Added: We depend on our senior Carlyle professionals, including our new Chief Executive Officer, and the loss of their services or investor confidence in such personnel could have a material adverse effect on our business, results of operations and financial condition.
+Added: We depend on the efforts, skill, reputations and business contacts of our senior Carlyle professionals, including our executive officers, the members of the investment committees of our investment funds and senior members of our investment teams, the information and deal flow they and others generate during the normal course of their activities and the synergies among the diverse fields of expertise and knowledge held by our professionals.
+Added: During 2022, our former Chief Executive Officer, Kewsong Lee, departed from Carlyle.
+Added: served as our interim Chief Executive Officer, in addition to his role as Co-Chairman of the Board, while we searched for a suitable permanent Chief Executive Officer.
+Added: We recently announced the appointment of Harvey M.
+Added: Schwartz as our Chief Executive Officer and a member of our Board, effective February 15, 2023.
+Added: It will take the Chief Executive Officer time to transition into our business and develop a leadership vision.
+Added: The new Chief Executive Officer may seek changes in our business operations that create uncertainty for our business and investors, including our employees, shareholders and other stakeholders, and there is no guarantee that the Chief Executive Officer will effectively cure any such uncertainties and/or be well received by key stakeholders, despite his strong credentials and the diligence and intentions of the Board’s Search Committee.
+Added: Our executive officers and senior Carlyle professionals are not obligated to remain employed with us in their current capacities or at all.
To continue to enhance our talent base, we have and will continue to hire and internally develop senior professionals to assume key leadership positions throughout the firm into the future.
The availability and efficacy of such future leadership may constitute an adverse risk to our business.
−Removed: While our founders Messrs.
−Removed: Conway and Rubenstein continue to serve as Co-Chairmen of our Board and Mr.
−Removed: D’Aniello serves as Chairman Emeritus and each remains committed to our business and in certain cases serve on various investment committees, in these roles, they are not executive officers and no longer have responsibility for the day-to-day operations of the firm and may choose to pursue philanthropic or other personal endeavors, including personal investment activities, in addition to their roles at Carlyle.
−Removed: Our senior Carlyle professionals and other key personnel possess substantial experience and expertise and have strong business relationships with investors in our funds and other members of the business community.
−Removed: As a result, the loss of these personnel could jeopardize our relationships with investors in our funds and members of the business community and result in the reduction of AUM or fewer investment opportunities.
−Removed: For example, if any of our senior Carlyle professionals were to join or form a competing firm, that action could have a material adverse effect on our business, results of operations and financial condition.
−Removed: Several key personnel have left the firm in the past and others may do so in the future, and we cannot predict the impact that the departure of any key personnel will have on our ability to achieve our objectives.
+Added: Our senior Carlyle professionals possess substantial experience and expertise and have strong business relationships with investors in our funds and other members of the business community.
+Added: As a result, the loss of these personnel, including any potential departures or retirements, could jeopardize our relationships with investors in our funds and members of the business community and result in reduction of AUM or fewer investment opportunities.
+Added: For example, if any of our senior Carlyle professionals were to join or form a competing firm, that action could have a material adverse effect on our business,
+Added: results of operations and financial condition.
+Added: Personnel have left the firm in the past and others may do so in the future, and we cannot predict the impact that the departure of any key personnel will have on our ability to achieve our objectives.
The loss of the services of any of our key personnel could have a material adverse effect on our revenues, net income and cash flow and could harm our ability to maintain or grow AUM in existing funds or raise additional funds in the future.
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Our most important asset is our people, and our continued success is highly dependent upon the efforts of our senior Carlyle professionals and other employees.
−Removed: Our future success and growth depends to a substantial degree on our ability to retain and motivate our senior Carlyle professionals, key personnel and other employees to strategically recruit, retain and motivate new talented personnel, including new senior Carlyle professionals.
+Added: Our future success and growth depends to a substantial degree on our ability to retain and motivate our senior Carlyle professionals and other employees to strategically recruit, retain and motivate talented personnel, including senior Carlyle professionals.
The market for qualified professionals is extremely competitive across levels and areas of expertise, and we may not be successful in our efforts to recruit, retain and motivate these professionals.
In connection with the COVID-19 pandemic, there has been a shift to a hybrid work model and, in our recruiting efforts, we have seen increased focus by prospective candidates on remote and hybrid work arrangements and arrangements providing more flexibility, including around location.
+Added: Although we have generally moved to a hybrid work model in which many of our employees are permitted to work remotely for a designated portion of their working time and are expected to come to a Carlyle office for a designated portion of their working time, we continue to see focus on remote work arrangements.
If there is a further shift to a longer-term fully remote model that does not require maintaining close proximity to a company’s offices in the markets in which we compete for talent, we may experience an even further increase in competition for talent and it may be difficult to recruit and retain our professionals.
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Even when we offer top-of-market compensation packages, we may not be able to attract and retain all of our desired personnel due to shifting employee priorities.
+Added: In this respect, in January 2023, the U.S.
+Added: Federal Trade Commission (“FTC”) published a proposed rule that, if finally issued, would generally prohibit post-employment non-compete clauses (or other clauses with comparable effect) in agreements between employers and their employees.
+Added: We are monitoring the proposed rule and the impact it may have on our ability to recruit and retain our professionals.
For our investment professionals, we have historically relied in part on their interests in our investment funds’ carried interest and incentive fees to discourage them from leaving the firm.
−Removed: However, to the extent our investment funds perform
−Removed: poorly, thereby reducing the potential for carried interest and incentive fees, those interests become less valuable to them and may become a less effective retention tool.
+Added: However, to the extent our investment funds perform poorly, thereby reducing the potential for distributions in respect of carried interest and incentive fees, those interests become less valuable to them and may become a less effective retention tool.
There are also factors beyond our control that may affect our efforts to recruit, retain and motivate investment professionals, in particular as they relate to tax considerations regarding carried interest.
The tax treatment of carried interest has been an area of focus for policymakers and government officials in recent years.
−Removed: For example, the Tax Cuts and Jobs Act (the “TCJA”) enacted in 2017 generally requires that carried interest satisfy a more-than-three-year holding period (as opposed to a more-than-one-year holding period under prior law) to qualify as long-term capital gain that is taxed at preferential rates for individuals.
+Added: For example, the Tax Cuts and Jobs Act (the “TCJA”) enacted in 2017 generally requires that carried interest satisfy a more-than-three-year holding period (as opposed to a more-than-one-year holding period under prior law) to qualify as a long-term capital gain that is taxed at preferential rates for individuals.
Congress and the current Administration may consider proposals to treat carried interest as ordinary income rather than as capital gain for tax purposes, to impose a surcharge on carried interest, to further extend the holding period for carried interest to qualify for long-term capital gain treatment, or to increase the capital gains tax rate, each of which could result in a material increase in the amount of taxes that our carry participants would be required to pay.
While most proposals regarding the taxation of carried interest require realization of gains before applying ordinary income rates, U.S.
−Removed: federal legislation has been introduced that would require holders of carried interest to recognize a specified amount of deemed compensation income each year regardless of whether the investment partnership recognizes income or gain and regardless of whether and when the holders receive distributions in respect of their carried interests.
+Added: federal legislation has previously been introduced that would require holders of carried interest to recognize a specified amount of deemed compensation income each year regardless of whether the investment partnership recognizes income or gain and regardless of whether and when the holders receive distributions in respect of their carried interests.
If the tax treatment of carried interest continues to be an area of focus for policymakers and government officials, it could result in further regulatory action by federal, state, or non-U.S.
−Removed: For example, certain states, including New York and California, have proposed legislation to levy additional state tax on carried interest.
+Added: For example, certain states, including New York and California, have previously proposed legislation to levy additional state tax on carried interest.
We have seen similar policy discussions in respect of the appropriate treatment of carried interest in many of the international jurisdictions in which we have investment professionals.
The additional pressures of fiscal deficits created as a result of the COVID-19 pandemic have heightened these risks as international authorities consider ways to increase tax revenues.
−Removed: Such legislative and regulatory changes that modify the tax treatment of carried interest could make it more difficult for us to incentivize, recruit and retain investment professionals, which may have an adverse effect on our ability to achieve our investment objectives and thereby reduce the after-tax income and gain related to our business, our distributions to stockholders and the market price of our shares.
+Added: Such legislative and regulatory changes that modify the tax treatment of carried interest could make it more difficult for us to incentivize, recruit and retain investment professionals, which may have an adverse effect on our ability to achieve our
+Added: investment objectives and thereby reduce the after-tax income and gain related to our business, our distributions to stockholders and the market price of our shares.
We have granted and expect to grant equity awards from our Equity Incentive Plan, which has caused dilution.
−Removed: While we evaluate the grant of equity awards from our Equity Incentive Plan to employees on an annual basis, the size of the grants, if any, is made at our discretion.
+Added: While we evaluate the grant of equity awards from our Equity Incentive Plan to employees on an annual basis, the size of the grants, if any, is made at our discretion and may vary significantly from year-to-year, including as the result of special programs or significant senior personnel hirings.
If we increase the use of equity awards from our Equity Incentive Plan in the future, expenses associated with equity-based compensation may increase materially.
In 2022, we incurred equity compensation expenses of $154.0 million in connection with grants of restricted stock units.
+Added: In February 2023, we granted a total of 9.9 million restricted stock units to our personnel, including certain senior Carlyle professionals and other key personnel, which will increase our equity-based compensation expense in the coming years.
+Added: In addition, following the foregoing grants, taken together with other restricted stock unit grants since the approval of the Equity Incentive Plan in June 2021, there were 2,957,542 remaining shares of common stock available for grant under the Equity Incentive Plan.
+Added: An increase in the number of shares available for grant under the Equity Incentive Plan would require shareholder approval.
The value of our common stock may drop in value or be volatile, which may make our equity less attractive to our employees since we may not be able to adequately incentivize them.
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All of the shares of common stock held by our founders are fully vested.
−Removed: In order to recruit and retain existing and future senior Carlyle professionals and other key personnel, we may need to increase the level of compensation that we pay to them, which could include grants of significant amounts of restricted stock awards under our Equity Incentive Program.
+Added: In order to recruit and retain existing and future senior Carlyle professionals and other key personnel, we may need to increase the level of compensation that we pay to them, which could include grants of significant amounts of restricted stock unit awards or other equity incentive awards under our Equity Incentive Plan.
Accordingly, as we promote or hire new senior Carlyle professionals and other key personnel over time or attempt to retain the services of certain of our key personnel, we may increase the level of compensation we pay to these individuals, which could cause our total employee compensation and benefits expense as a percentage of our total revenue to increase and adversely affect our profitability.
−Removed: For example, in 2021, we granted 7.1 million restricted stock units to certain senior Carlyle professionals, the majority of which are subject to vesting based on the achievement of annual performance targets over four years, which will increase our equity-based compensation expense in the coming years.
−Removed: Additionally, in February 2021, in order to further foster the alignment of our carry participants, in particular our senior investment professionals, with our stockholders, the Compensation Committee approved a new program whereby, at Carlyle’s discretion, up to 20% of a carry participant’s realized proceeds over a threshold amount may be distributed in fully vested, new shares of our common stock under our Equity Incentive Plan.
−Removed: Over the first two years of the program, which commenced during the fourth quarter of 2021, up to $100 million in common shares may be issued in lieu of distributing carried interest all in cash.
−Removed: This program will not result in incremental compensation expense.
−Removed: The issuance of equity interests in our business in the future to our senior Carlyle professionals and other personnel would also dilute our stockholders.
+Added: For example, we have had restricted stock unit award programs pursuant to which in 2021 we granted 7.1 million restricted stock units to certain senior Carlyle professionals, the majority of which are eligible to vest based on the achievement of annual performance targets over four years, and in February 2023 we granted 9.9 million restricted stock units to certain senior Carlyle professionals, the majority of which are eligible to vest in installments over a period of three and a half years.
+Added: These restricted stock unit grants, in addition to our other restricted stock unit grants, will increase our equity-based compensation expense in the coming years, particularly in 2024 when 40% of the performance-based awards granted in 2021 are generally eligible to vest.
We strive to maintain our culture of collaboration and seek to continue to align our interests (and the interests of our employees) with those of our investors.
If we do not continue to develop and implement the right processes and tools to maintain our culture, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations.
−Removed: Given our focus on achieving superior investment performance and maintaining and strengthening investor relations, we may reduce our AUM, restrain its growth, reduce our fees or otherwise alter the terms under which we do business when we deem it in the best interest of our investors—even in circumstances where such actions might be contrary to the near-term interests of stockholders.
−Removed: From time to time if we decide it is in the best interests of stakeholders, we may take actions that could reduce the profits we could otherwise realize in the short term.
−Removed: While we believe that our commitment to treating our investors fairly is in the long-term interest of us and our stockholders, our stockholders should understand we may take actions that could adversely impact our short-term profitability, and there is no guarantee that such actions will benefit us in the long term.
−Removed: The means by which we seek to achieve superior investment performance in each of our strategies could include limiting the AUM in our strategies to an amount that we believe can be invested appropriately in accordance with our investment philosophy and current or anticipated economic and market conditions.
−Removed: Additionally, we may voluntarily reduce management fee rates and terms for certain of our funds or strategies when we deem it appropriate, even when doing so may reduce our short-term revenue.
−Removed: For instance, in order to enhance our relationship with certain fund investors, we have reduced management fees or ceased charging management fees on certain funds in specific instances.
−Removed: In certain investment funds, we have agreed to charge management fees based on invested capital or net asset value as opposed to charging management fees based on committed capital.
−Removed: In certain cases, such as our most recent power fund, we have provided “fee holidays” to certain investors during which we do not charge management fees for a fixed period of time (such as the first six months).
−Removed: We may receive requests to reduce management fees on other funds in the future.
−Removed: See “—Risks Related to Our Business Operations—Our investors may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable to us than those of our existing funds, which could adversely affect our revenues.”
−Removed: Many of our investment funds utilize subscription lines of credit to fund investments prior to the receipt of capital contributions from the fund’s investors.
−Removed: As capital calls made to a fund’s investors are delayed when using a subscription line of credit, the investment period of such investor capital is shortened, which may increase the net internal rate of return of an investment fund.
−Removed: However, since interest expense and other costs of borrowings under subscription lines of credit are an expense of the investment fund, the investment fund’s net multiple of invested capital will be reduced, as will the amount of carried interest generated by the fund.
−Removed: Any material reduction in the amount of carried interest generated by a fund will adversely affect our revenues.
−Removed: We may also take other actions that could adversely impact our short-term results of operations when we deem such action appropriate.
−Removed: We have also waived management fees on certain leveraged finance vehicles at various times to improve returns.
−Removed: Furthermore, we typically delay the realization of carried interest to which we are otherwise entitled if we determine (based on a variety of factors, including the stage of the fund’s life cycle and the extent of fund profits accrued to date) that there would be an unacceptably high risk of potential future giveback obligations.
−Removed: Any such delay could result in a deferral of realized carried interest to a subsequent period.
−Removed: See “—Our revenue, earnings and cash flow are variable, which makes it difficult for us to achieve steady earnings growth on a quarterly basis.”
We may not be successful in expanding into new investment strategies, markets and businesses, which could adversely affect our business, results of operations and financial condition.
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• the risk that a change in ownership will negatively impact the relationship between an acquiree and the investors in its investment vehicles.
−Removed: In addition, if a new product, business or venture developed internally or by acquisition is unsuccessful, we may decide to wind down, liquidate and/or discontinue it.
−Removed: Such actions could negatively impact our relationships with investors in those businesses, could subject us to litigation or regulatory inquiries and can expose us to additional expenses, including impairment charges and potential liability from investor or other complaints.
−Removed: Our organizational documents do not limit our ability to enter into new lines of business, and we intend to, from time to time, expand into new investment strategies, geographic markets and businesses, each of which may result in additional risks and uncertainties in our businesses.
−Removed: We intend, to the extent that market conditions warrant, to seek to grow our businesses and expand into new investment strategies, geographic markets and businesses.
−Removed: Our organizational documents do not limit us to the asset management business and to the extent that we make strategic investments or acquisitions in new geographic markets or businesses, undertake other related strategic initiatives or enter into a new line of business, we may face numerous risks and uncertainties, including risks associated with the following:
−Removed: • the required investment of capital and other resources;
−Removed: • the possibility that we have insufficient expertise to engage in such activities profitably or without incurring inappropriate amounts of risk;
−Removed: • the diversion of management’s attention from our core businesses;
−Removed: • assumption of liabilities in any acquired business;
−Removed: • the disruption of our ongoing business;
−Removed: • how our existing fund investors view any new initiatives;
−Removed: • the increasing demands on or issues related to the combination or integration of operational and management systems and controls, including related securities systems, and infrastructure;
−Removed: • compliance with or applicability to our business or our portfolio companies of regulations and laws, including, in particular, local regulations and laws (for example, consumer protection related laws) and customs in the numerous global jurisdictions in which we operate and the impact that noncompliance or even perceived noncompliance could have on us and our portfolio companies;
−Removed: • our ability to achieve expected results or realize expected synergies from our investments;
−Removed: • a potential increase in investor concentration;
−Removed: • the broadening of our geographic footprint, including the risks associated with conducting operations in certain foreign jurisdictions where we currently have no presence (including regulatory, tax, legal, and reputational consequences).
Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar or from which we are currently exempt, and may lead to increased liability, litigation, regulatory risk and expense.
If a new business generates insufficient revenue or if we are unable to efficiently manage our expanded operations, our results of operations may be adversely affected.
−Removed: Our strategic initiatives may include joint ventures, which may subject us to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or reputational damage relating to, systems, controls and personnel that are not under our control.
−Removed: There can be no assurances that any joint venture opportunities will be successful.
−Removed: We and our fund investors hold a 71.5% controlling interest in Fortitude, inclusive our 19.9% interest.
−Removed: In addition to the risks noted above, if Fortitude is unable to successfully operate independently, or any real or perceived conflicts of interest arise in implementing Fortitude’s asset management strategy, it may adversely impact our investment in the company and our future growth plans for the business and may not allow us to realize the strategic rationale for investing in the company.
−Removed: Operational risks (including those associated with our business model), system security risks, breaches of data protection, cyberattacks or actions or failure to act by our employees or others with authorized access to our networks may disrupt our businesses, result in losses or limit our growth.
+Added: Moreover, if a new product, business or venture developed internally or by acquisition is unsuccessful, we may decide to wind down, liquidate and/or discontinue it.
+Added: Such actions could negatively impact our relationships with investors in those businesses, could subject us to litigation or regulatory inquiries and can expose us to additional expenses, including impairment charges and potential liability from investor or other complaints.
+Added: In August 2022, we acquired Abingworth, a life sciences investment firm, to expand our healthcare investment platform with the addition of nearly $2 billion in assets under management and a specialized team of over 20 investment professionals and advisors.
+Added: The integration of Abingworth with us, and Carlyle’s corresponding entry into the life sciences industry, may pose some or all of the risks noted above.
+Added: Operational risks (including those associated with our business model), system security risks, breaches of data protection, cyberattacks or actions or failure to act by our employees or others with authorized access to our networks, including our ability to insure against such risks, may disrupt our businesses, result in losses or limit our growth.
We rely heavily on our financial, accounting, information, and other data processing systems.
We face various security threats on a regular basis, including ongoing cybersecurity threats to and attacks on our information technology infrastructure that are intended to gain access to our proprietary information, destroy data or disable, degrade or sabotage our systems.
−Removed: These security threats could originate from a wide variety of sources, including unknown third parties outside the company and current and past employees and contractors who have or had access to our facilities, systems and information (“insider risk”).
−Removed: There has been an increase in the frequency and sophistication of the cyber and security threats we face, with attacks ranging from those common to businesses generally to those that are more advanced and persistent, which may target us because, as a global investment management firm, we hold a significant amount of confidential and sensitive information about our investors, our portfolio companies and potential investments.
−Removed: As a result, we may face a heightened risk of a security breach, online extortion attempt, or disruption with respect to this information resulting from an attack by a variety of bad actors, including computer hackers, foreign governments, cyber extortionists or cyber terrorists.
−Removed: If successful, these types of attacks on our network or other systems could have a material adverse effect on our business and results of operations, due to, among other things, the loss of investor or proprietary data, interruptions or delays in our business and damage to our reputation.
+Added: These security threats could originate from a wide variety of sources, including known or unknown external third parties and current or former employees and contractors who have or had access to our facilities, systems and information.
+Added: There has been an increase in the frequency and sophistication of the security threats we face, with thwarted attacks ranging from those common to businesses generally to those that are more advanced and persistent, which may target us because, as a global investment management firm, we hold a significant amount of confidential and sensitive information about our investors, our portfolio companies, potential investments and our employees.
+Added: As a result, we may face a heightened risk of a security breach, online extortion attempt, or business disruption with respect to this information resulting from an attack by a variety of bad actors, including hacktivists, cyber criminals, foreign governments, cyber extortionists or cyber terrorists.
+Added: If successful, these types of attacks on our network or other systems could have a material adverse effect on our business and results of operations, due to, among other things, the loss or exposure of investor or proprietary data, the loss or exposure of personal information that we retain, interruptions or delays in our business and damage to our reputation.
Our suppliers, contractors, investors, and other third parties with whom we do business also experience cyber threats and attacks that are similar in frequency and sophistication.
−Removed: These supply chain attacks are increasing in frequency and impact on the businesses they affect.
−Removed: In many cases, we have to rely on the controls and safeguards put in place by our suppliers, contractors, investors and other third parties to defend against, respond to, and report these attacks.
−Removed: Because those with authorized access to our networks, including employees and contractors may introduce vulnerabilities in our systems if they are the target of “phishing,” social engineering, bribery, coercion or other attacks through the firm’s systems, we have implemented a security awareness training program.
+Added: Supply chain attacks are increasing in frequency and impact on the businesses they affect.
+Added: We do not have continuous visibility into the security of our supply chain entities and must rely on contractual assurances and the controls and safeguards put in place by our suppliers, contractors, investors and other third parties to defend against, respond to, and report such attacks.
+Added: Those who have or have had authorized access to our networks, including current and former employees and contractors, may introduce vulnerabilities in our systems if they are the target of “phishing,” social engineering, bribery, coercion, or harbor malintent to the Company.
+Added: We have therefore implemented a security awareness training program.
The objective of this program is to inform Carlyle personnel and contractors of their responsibility for information security and includes quarterly online training, live awareness events and phishing simulations.
+Added: This training is in addition to existing onboarding and annual trainings that discuss cybersecurity issues.
We cannot know the potential impact of future cyber incidents, which vary widely in severity and scale.
There can be no assurance that the various procedures and controls we utilize to mitigate these threats will be sufficient to prevent disruptions to our systems, especially because the cyber-attack techniques used change frequently or are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources.
−Removed: If any of these controls do not operate properly or are disabled for any reason or if there is any unauthorized disclosure of data, whether as a result of tampering, a breach of our network security systems, a cyber-incident or attack or otherwise, we could suffer substantial financial loss, increased costs, a disruption of our businesses, liability to our funds and investors, regulatory intervention or reputational damage.
−Removed: The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means.
−Removed: Significant security incidents at competitor global investment firms in which we are not directly impacted could indirectly lead to increased costs from investor due diligence, revisions to insurance premiums and more extensive and/or frequent regulator inspections.
+Added: If any of the controls we put in place do not operate properly or are disabled for any reason or if there is any unauthorized disclosure of data, whether as a result of tampering, a breach of our network security systems, a cyber-incident or attack or otherwise, we could suffer substantial financial loss, increased costs, a disruption of our businesses, liability to our funds and investors, regulatory investigations, intervention, and fines, and reputational damage.
+Added: The costs related to cyber or other security threats or disruptions may not be fully insured or otherwise indemnified.
+Added: Significant security incidents at competitor global investment firms in which we are not directly impacted could indirectly lead to increased costs from investor due diligence, revisions to insurance premiums and more extensive and/or frequent regulatory inspections.
Our information systems and technology may not continue to be able to accommodate our growth, and the cost of maintaining such systems may increase from its current level.
For example, our existing systems may not be adequate to identify or control the relevant risks in investment strategies employed by new investment funds we may introduce.
−Removed: A failure to accommodate growth, or an increase in costs related to such information systems, could have a material adverse effect on us.
+Added: Any failure to accommodate growth, particularly in the Global Credit segment, or an increase in costs related to such information systems, could have a material adverse effect on us.
In addition, we rely on third-party service providers for certain aspects of our business, including for certain information systems and technology and administration of our business development companies, structured credit funds and Global Investment Solutions segment.
−Removed: For example, Carlyle contracts information system backup and recovery services to a portfolio company.
−Removed: These third-party service providers could also face ongoing cybersecurity threats and as a result unauthorized individuals could improperly gain access to our confidential data.
−Removed: Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair the quality of the funds’ operations and could affect our reputation and hence adversely affect our businesses.
+Added: For example, Carlyle contracts information system backup and recovery services to certain portfolio companies.
+Added: These third-party service providers could face ongoing cybersecurity threats and, as a result, unauthorized individuals could improperly gain access to our confidential data.
+Added: Any attack on, or interruption or deterioration in, the performance of these third parties or failures of their information systems and technology could also impair the quality of the funds’ operations, affect our reputation, and adversely affect our businesses.
Our technology, data and intellectual property and the technology, data and intellectual property of our portfolio companies are also subject to a heightened risk of theft, disruption or compromise to the extent we and our portfolio companies engage in operations outside the United States, particularly in those jurisdictions that do not have comparable levels of protection of proprietary information and intangible assets, such as intellectual property and customer information and records.
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Any such direct or indirect compromise of these assets could have a material adverse consequence on us or our investments.
−Removed: Our global workforce has quickly transitioned to a remote work environment during the pandemic.
−Removed: We depend on our personnel located near Washington, DC, where most of our administrative and operations personnel are centralized, including our treasury, tax, finance, and GTS functions, for the continued operation of our business.
−Removed: However, our global employee base services the needs of our investment funds and investors out of 26 offices around the world.
−Removed: As our business needs evolve, we may be required to expand our office space, which could increase our rent expense.
−Removed: Alternatively, as part of trends toward remote and hybrid work develop, and/or in order to reduce expenses, we may close offices, and a restructuring of our corporate real estate that results in the closure or subleasing of one or more offices could result in charges and other costs incurred by us.
−Removed: Additionally, we may terminate the employment of a significant number of our personnel or cut back or eliminate the use of certain services or service providers, that, in each case, could be important to our business and without which our operating results could be adversely affected.
−Removed: A disaster or a disruption in the infrastructure that supports our businesses, including a disruption involving electronic communications or other services used by us or third parties with whom we conduct business, or directly affecting our headquarters, could have a material adverse impact on our ability to continue to operate our business without interruption.
+Added: A disaster or a disruption in the infrastructure that supports our businesses, including a disruption involving electronic communications or other services used by us or third parties with whom we conduct business, or directly affecting our offices, could have a material adverse impact on our ability to continue to operate our business without interruption.
Our disaster recovery programs may not be sufficient to mitigate the harm that may result from such a disaster or disruption.
−Removed: For example, systematic risks such as a massive and prolonged global failure of Amazon or Microsoft’s cloud services could result in cascading catastrophic systems failures.
+Added: systematic risks such as a massive and prolonged global failure of Amazon or Microsoft’s cloud services could result in cascading catastrophic systems failures.
We may also need to commit additional management, operational and financial resources to identify new professionals to join our firm and to maintain appropriate operational and financial systems to adequately support expansion.
The market for hiring talented professionals, including IT and cybersecurity professionals, is competitive and we may not be able to grow at the pace we desire.
−Removed: In addition, we, and our portfolio companies, may not be able to obtain or maintain sufficient insurance on commercially reasonable terms or with adequate coverage levels against potential liabilities we may face in connection with potential claims, which could have a material adverse effect on our business.
+Added: In addition, we, and our portfolio companies, may not be able to obtain or maintain sufficient insurance (including cyber insurance) on commercially reasonable terms or with adequate coverage levels against potential liabilities we may face in connection with potential claims, which could have a material adverse effect on our business.
We may face a risk of loss from a variety of claims, including related to securities, antitrust, contracts, cyber incidents, fraud, business interruption and various other potential claims, whether or not such claims are valid.
−Removed: Insurance and other safeguards might only partially reimburse us for our losses, if at all, and if a claim is successful and exceeds or is not covered by our insurance policies, we may be required to pay a substantial amount in respect of such successful claim.
−Removed: Because of market conditions, premiums and deductibles for certain insurance policies, particularly D&O, cyber and property insurance, have increased substantially and may increase further, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage.
−Removed: Additionally, the dollar amount of claims and/or the number of claims we experience may also increase at any time, which may have the result of further increasing our costs.
+Added: Insurance and other safeguards may only partially reimburse us for our losses, if at all, and if a claim is successful and exceeds or is not covered by our insurance policies, we may be required to pay a substantial amount in respect of such successful claim.
+Added: Because of market conditions, premiums and deductibles for certain insurance policies, particularly directors and officers, cyber and property insurance, have increased substantially and may increase further, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage.
+Added: Moreover, the dollar amount of claims and/or the number of claims we experience may also increase at any time, which may have the result of further increasing our costs.
Certain losses of a catastrophic nature, such as wars, earthquakes, typhoons, pandemics, terrorist attacks or other similar events, may be uninsurable or may only be insurable at rates that are so high that maintaining coverage would cause an adverse impact on our business, our investment funds and their portfolio companies.
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In some cases, insurers are offering significantly limited coverage against terrorist acts for additional premiums, which can greatly increase the total cost of casualty insurance for a property.
−Removed: As a result, we, our investment funds and their portfolio companies may not be insured against terrorism or certain other catastrophic losses.
+Added: As a result, we, our investment funds and their portfolio companies may not be insured or fully insured against terrorism or certain other catastrophic losses.
Our portfolio companies also rely on data and processing systems and the secure processing, storage and transmission of information, including highly sensitive financial and medical data.
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Such an event may have adverse consequences on our investment or assets of the same type or may require portfolio companies to increase preventative security measures or expand insurance coverage.
−Removed: Failure to maintain the security of our information and technology networks, including personally identifiable employee and investor information, intellectual property and proprietary business information could have a material adverse effect on us.
−Removed: We are subject to various risks and costs associated with the collection, handling, storage and transmission of sensitive information, including those related to compliance with U.S.
−Removed: and foreign data collection and privacy laws and other contractual obligations, as well as those associated with the compromise of our systems collecting such information.
−Removed: In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and intellectual property, and personally identifiable information of our employees and our investors, in our data centers, on our networks and with our third-party service providers.
+Added: Failure to maintain the security of our information and technology networks, including personally identifiable information, intellectual property and proprietary business information could have a material adverse effect on us.
+Added: In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and intellectual property, and personally identifiable information of our employees, investors, and potential investors, in our data centers, on our networks and with our third-party service providers.
+Added: Such data may be subject to U.S.
+Added: and foreign data protection and privacy laws and other contractual obligations.
The secure processing, maintenance and transmission of this information are critical to our operations.
−Removed: Although we take various measures and have made, and will continue to make, significant investments to ensure the integrity of our systems and to safeguard against such failures or security breaches, including mechanisms for governance, strategy and risk management, there can be no assurance that these measures and investments will provide protection.
−Removed: The COVID-19 pandemic has exacerbated these risks due to heavier reliance on online communication and the remote or partially remote working environment, which may be less secure, and there has been a significant increase in hacking attempts by cyber-criminals.
−Removed: In 2021, Carlyle responded to several large-scale phishing attacks, resulting in no harm to Carlyle assets.
+Added: Although we take various measures and have made, and will continue to make, significant investments to ensure the integrity of our systems and to safeguard against such failures or security breaches, including mechanisms for governance, strategy and risk management, there can be no assurance that these measures and investments will provide adequate protection.
+Added: The COVID-19 pandemic has exacerbated these risks due to heavier reliance on online communication and the hybrid work environment, which may be less secure, and there has been a significant increase in hacking attempts by cyber-criminals.
+Added: In 2022, Carlyle experienced no material cyber incidents and responded promptly and effectively to routine events, such as phishing campaigns and vendor breach notifications, resulting in no substantial harm to Carlyle assets.
In addition, we and our employees have been and expect to continue to be the target of fraudulent calls and emails, the subject of impersonations and fraudulent requests for money, including attempts to redirect material payment amounts to fraudulent bank accounts, and other forms of spam attacks, phishing or other social engineering, supply chain attacks, ransomware or other events.
−Removed: In addition, we have been, and could in the future be, the target of a type of wire transfer fraud known as business email compromise where a third party seeks to benefit from misrepresenting an employee or fund investor by improperly authorizing a wire transfer or change in wire instructions.
−Removed: While our policies and procedures have been effective against this fraud to date, a significant actual or potential theft, loss, corruption, exposure, fraudulent use or misuse of investor, employee or other personally identifiable or proprietary business data, whether by third parties or as a result of employee malfeasance or otherwise, non-compliance with our contractual or other legal obligations regarding such data or intellectual property or a violation of our privacy and security policies with respect to such data could result in significant remediation and other costs, fines, litigation or regulatory actions against us by the U.S.
+Added: We also have been, and could in the future be, the target of a type of wire transfer fraud known as business email compromise where a third party seeks to benefit from misrepresenting an employee or fund investor by improperly authorizing a wire transfer or change in wire instructions.
+Added: While our policies and procedures have been effective against this fraud to date, a significant actual or potential theft, loss, corruption, exposure, fraudulent use or misuse of investor, employee or other personally identifiable or proprietary business data, whether by third parties or as a result
+Added: of employee malfeasance or otherwise, non-compliance with our contractual or other legal obligations regarding such data or intellectual property or a violation of our privacy and security policies with respect to such data could result in significant remediation and other costs, fines, litigation or regulatory actions against us by the U.S.
federal and state governments, the EU or other jurisdictions or by various regulatory organizations or exchanges.
−Removed: Such an event could additionally disrupt our operations and the services we provide to investors, damage our reputation, result in a loss of a competitive advantage, impact our ability to provide timely and accurate financial data, and cause a loss of confidence in our services and financial reporting, which could adversely affect our business, revenues, competitive position and investor confidence.
+Added: Such an event could also disrupt our operations and the services we provide to investors, damage our reputation, result in a loss of a competitive advantage, impact our ability to provide timely and accurate financial data, and cause a loss of confidence in our services and financial reporting, which could adversely affect our business, revenues, competitive position and investor confidence.
+Added: Risks Related to Regulation and Litigation
Laws and regulations relating to privacy, data protection, data transfers, data localization, and data security worldwide may limit the use and adoption of our services and adversely affect our business.
−Removed: Cybersecurity is a top priority for regulators around the world.
−Removed: As a result, we are subject to a variety of federal, state, local, and international laws, directives, and regulations, as well as contractual obligations, relating to the collection, use, retention, security, disclosure, transfer, and other processing of personal information and other sensitive data.
−Removed: The legal framework for privacy, data protection, and data transfers worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.
−Removed: In some cases, federal regulators have been focusing on cybersecurity as an area of concern for several years.
−Removed: For example, in guidance from the SEC since at least 2011, cybersecurity has been raised as an area where companies, which would include global investment firms, must disclose both threats to the company and material cyber events that have been experienced by that company.
−Removed: In at least cases from the latter half of 2021, the SEC brought enforcement actions against registered companies that failed to report such cyber events.
−Removed: We expect increasing SEC enforcement activity related to cybersecurity matters, including by the SEC’s Office of Compliance Inspections and Examinations (OCIE) in its examination programs, where cybersecurity has been prioritized with an emphasis on, among other things, proper configuration of network storage devices, information security governance, and policies and procedures related to retail trading information security.
−Removed: Further, the SEC has indicated in recent remarks that areas of focus for potential new policies and initiatives could include cyber hygiene and preparedness, cyber incident reporting to the government and, in certain circumstances disclosure to the public.
−Removed: Although we maintain cybersecurity controls designed to prevent cyber incidents from occurring, no security is perfect and not all cyberattacks can be detected or stopped.
−Removed: It is possible that current and future cyber enforcement activity will target practices that we believe are compliant but were not necessarily deemed to be by the SEC.
+Added: Legislators and regulators around the world identify data security and privacy as top priorities.
+Added: As a result, we are subject to an increasing variety of federal, state, local, and international laws, directives, and regulations, as well as contractual obligations, relating to the collection, use, retention, security, disclosure, transfer, and other processing of personal information and other confidential data.
+Added: The global legal frameworks for privacy, data protection, and data transfers are rapidly evolving and are likely to remain uncertain for the foreseeable future.
+Added: In February 2022, the SEC proposed rules regarding cybersecurity that would require registered investment advisers and registered funds to implement written policies and procedures designed to address cybersecurity risks, report significant cybersecurity incidents to the SEC using a proposed form and within a prescribed time period, and keep enumerated cybersecurity-related books and records.
+Added: In addition, in March 2022, the SEC issued a proposed rule to mandate disclosure by all public companies of all cybersecurity incidents.
+Added: These disclosures would include information such as:
+Added: management and the board’s role and oversight of cybersecurity risks, applicable policies and procedures, and how if at all risks and incidents are likely to impact the financial statements.
+Added: Moreover, certain incidents would have mandatory reporting on Form 8-K.
+Added: In light of these proposed rules and the focus of federal regulators on cybersecurity generally in recent years, we expect increasing SEC enforcement activity related to cybersecurity matters, including by the SEC’s Office of Compliance Inspections and Examinations in its examination programs, where cybersecurity has been prioritized with an emphasis on, among other things, proper configuration of network storage devices, information security governance, and policies and procedures related to retail trading information security.
+Added: Although we maintain cybersecurity controls designed to prevent cyber incidents from occurring, no security is impenetrable to cyberattacks.
+Added: It is possible that current and future cyber enforcement activity will target practices that we believe are compliant but the SEC deems otherwise.
In addition, many jurisdictions in which we operate have other laws and regulations relating to data privacy, cybersecurity, data transfers, data localization and protection of personal information.
−Removed: In the European Economic Area (“EEA”), the General Data Protection Regulation (“GDPR”) establishes requirements applicable to the processing of personal data, affords new data protection rights to individuals, and imposes penalties for serious data breaches.
−Removed: Additionally, Brexit took effect in January 2020, which will lead to further legislative changes and reduces
−Removed: clarity as to whether data transfer to the United Kingdom will remain lawful in the long term.
+Added: Any regulatory investigation into compliance with these laws and regulations would be costly and could lead to significant fines, service interruption, loss of licensure and other harms to the Company.
+Added: In the European Economic Area (“EEA”), the General Data Protection Regulation (“GDPR”) establishes requirements applicable to the processing of personal data, affords data protection rights to individuals, and imposes penalties for serious data breaches.
+Added: In addition, Brexit took effect in January 2020, which will lead to further legislative changes and reduces clarity as to the future burden of transferring data from the EEA to the United Kingdom.
We may also need to make use of alternative data transfer mechanisms such as standard contractual clauses approved by the European Commission, or the SCCs.
−Removed: On June 4, 2021, the European Commission adopted new SCCs under the GDPR for personal data transfers outside the EEA, which may require us to expend significant resources to update our contractual arrangements and to comply with such obligations.
−Removed: Further, data protection authorities may require measures to be put in place in addition to SCCs for transfers to countries outside of the EEA.
+Added: On June 4, 2021, the European Commission adopted new standard contractual clauses (“SCCs”) under the GDPR for the transfer of personal data of EEA residents to jurisdictions outside the EEA.
+Added: In addition, the EEA and U.S.
+Added: governments are negotiating a framework for trans-Atlantic data transfers and complying with this framework may require a certification process and operational changes.
+Added: These updates and any future updates to data transfer rules may require us to expend significant resources to update our contractual arrangements and to comply with such obligations.
+Added: Moreover, data protection authorities may require measures to be put in place in addition to SCCs for transfers to countries outside of the EEA.
Our third-party service providers may also be affected by these changes.
In addition to other impacts, we may experience additional costs to comply with these changes, and we and our customers face the potential for regulators in the EEA to apply different standards to the transfer of personal data from the EEA to the United States and other non-EEA countries.
−Removed: We cannot fully predict how the GDPR, the UK GDPR, and other data protection laws or regulations may develop in the medium to longer term nor the effects of divergent laws and guidance regarding how data transfers to and from the UK will be regulated.
−Removed: Further, China strengthened the protection of personal information and tightened control over cross-border data transfer with the enactment of the Data Security Law (the “DSL”) (effective from September 1, 2021) and the Personal Information Protection Law (the “PIPL”) (effective from November 1, 2021).
−Removed: Both laws may affect the business of Carlyle and our portfolio companies in the following ways.
−Removed: Firstly, when conducting business and processing personal information or other data in China, Carlyle and our portfolio companies are obliged to comply with the processing rules and security obligations prescribed by the DSL and PIPL.
−Removed: Secondly, both laws may apply extra-territorially to the processing of personal information and other data relating to China conducted by Carlyle or our portfolio companies outside of China.
−Removed: Thirdly, both laws regulate cross-border data transfer conducted by Carlyle and our portfolio companies.
−Removed: The PIPL imposes several conditions for cross-border transfer of personal information (e.g., separate consent from data subjects, governmental security review and approval in certain circumstances), while the DSL restricts transfer of “important data” outside of China.
−Removed: The exact scope of “important data” remains unclear but may include certain data collected and/or generated by Carlyle and our portfolio companies in China.
−Removed: Lastly, Carlyle and our portfolio companies may be contractually bound by certain data compliance obligations when dealing with counterparties in China as a result of the DSL and the PIPL.
−Removed: In addition to the PIPL and the DSL, China passed its first Cybersecurity Law (the “CSL”) in 2016.
−Removed: The CSL is the first PRC law to specify regulatory requirements on cybersecurity and data protection applicable to online activities that had not, in the past, been regulated.
−Removed: Violations of the CSL include a variety of penalties, including warnings, surrender of illegal income, suspension of business activities, winding up, shutting down websites, and revocation of business license or relevant permits.
−Removed: More recently, China passed two cybersecurity laws that could affect our business.
−Removed: First, the DSL specifies obligations for entities and individuals handling personal data, including that acquisition of personal data cannot be via illegal means, and the collection and use of personal data cannot exceed necessary limits.
−Removed: Second, the National Intelligence Law (“NIL”) allows authorities to request organizations and citizens to provide necessary support, assistance, and cooperation to the government.
−Removed: The law provides broad police power, including the ability for intelligence officials to enter relevant restricted areas and venues, learn from and question relevant organizations, and collect relevant files, materials or items.
+Added: The UK and EEA are considering or have enacted a variety of other laws and regulations such as the Digital Operational Resilience Act (EEA), Online Safety Act (UK), and the Artificial Intelligence Act (EEA), all of which could have a material impact on Carlyle and its portfolio companies’ ability to conduct our businesses.
+Added: We cannot predict how these data protection laws or regulations may develop.
+Added: China continues to strengthen its protections of personal information and tighten control over cross-border data transfers with the implementation of the Cybersecurity Law (“CSL”), Data Security Law (the “DSL”) and the Personal Information Protection Law (the “PIPL”).
+Added: These laws may affect the business of Carlyle and our portfolio companies in the following ways.
+Added: First, Carlyle and our portfolio companies may be subject to these laws when conducting business and processing personal information or other data in China.
+Added: Second, these laws may apply extra-territorially to the processing of personal information and other data originating in China when conducted by Carlyle or our portfolio companies outside of China.
+Added: Third, these laws may impose new regulations on cross-border data transfers and transfers to third-party vendors conducted by Carlyle and our portfolio companies.
+Added: The PIPL imposes several conditions that limit certain cross-border transfer of personal information of Chinese residents, while the DSL restricts transfer of “important data” outside of China.
+Added: The scope of “important data” remains unclear but may include certain data collected and/or generated by Carlyle and our portfolio companies in China, in which case these restrictions could harm Carlyle and its portfolio companies that rely on the ability to freely transfer data outside China.
+Added: Finally, Carlyle and our portfolio companies may be contractually bound by certain compliance obligations when dealing with counterparties in China as a result of these laws.
+Added: In addition, the National Intelligence Law (“NIL”) allows authorities to request organizations like Carlyle and its portfolio companies to provide necessary support, assistance, and cooperation to the government.
+Added: The NIL codifies broad police power, including the ability for intelligence officials to enter relevant restricted areas and venues, learn from and question relevant organizations, and collect relevant files, materials or items, including electronic information.
The costs of compliance with, and other burdens imposed by the PIPL, CSL, DSL and NIL, along with any other cybersecurity and related laws in China, could have an adverse impact on our business and increase our compliance burden.
+Added: A determination by the Chinese government that Carlyle or its portfolio companies have violated one of these laws could result in a variety of penalties, including fines of up to 5% of global revenues, warnings, disgorgement, suspension of business activities or licenses, shutting down websites or applications that collect sensitive information, and revocation of business licenses or relevant permits.
+Added: Certain penalties can also apply to individual staff members responsible for a violation.
The lack of clarity and regulatory guidance on some issues adds to the compliance risks.
−Removed: Any inability, or perceived inability, to adequately address privacy and data protection concerns, or comply with applicable laws, regulations, policies, industry standards, contractual obligations, or other legal obligations could result in additional cost and liability and could damage our reputation and adversely affect our business.
−Removed: Many other foreign countries and governmental bodies in other relevant jurisdictions where Carlyle and our portfolio companies conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdiction that are more restrictive than those in the U.S.
+Added: Any inability, or perceived inability, to adequately address privacy and data protection concerns, or comply with Chinese laws, regulations, policies, industry standards, contractual obligations, or other legal obligations could result in additional cost and liability and could damage our reputation and adversely affect our business and the business of our portfolio companies.
+Added: Many other foreign countries and governmental bodies in jurisdictions where Carlyle and our portfolio companies conduct business have privacy and data protection laws and regulations that are more restrictive than those in the United States.
For example, the Hong Kong Personal Data (Privacy) Ordinance, the Australian Privacy Act, and the Brazilian Bank Secrecy Law.
−Removed: Global laws in this area are rapidly increasing in the scale and depth of their requirements, and are also often extra-territorial in nature.
−Removed: In addition, a wide range of regulators are seeking to enforce these laws across regions and borders.
−Removed: Furthermore, we frequently have privacy compliance requirements as a result of our contractual obligations with counterparties.
+Added: Global laws in this area are rapidly increasing in the scope and depth of their requirements, which are often extra-territorial in nature, and global regulators are seeking to enforce their countries’ laws outside of their borders.
+Added: In addition, we frequently have added privacy compliance requirements as a result of our contractual obligations with counterparties.
These legal and contractual obligations heighten our privacy obligations in the ordinary course of conducting our business in the U.S.
and internationally.
−Removed: In the U.S., new state laws are being passed, such as the California Consumer Privacy Act (“CCPA”) which took effect in January 2020 and provides for enhanced consumer protections for California residents, a private right of action for data breaches and statutory fines for data breaches and other CCPA violations.
−Removed: The CCPA also requires covered companies to provide new disclosures to California residents, and provides such residents new ways to opt-out of certain sales of personal information.
−Removed: The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
+Added: In the United States, federal privacy legislation is being considered by Congress and may lead to significant new obligations for us and our portfolio companies.
+Added: In the interim, a number of state laws are being passed, such as the California Consumer Privacy Act (“CCPA”), which took effect in January 2020.
+Added: The CCPA provides for enhanced consumer protections for California residents, a private right of action for certain data breaches that is expected to increase related litigation, and statutory fines for CCPA violations.
+Added: In addition, the CCPA requires covered companies to provide new disclosures to California residents and provides such residents new ways to opt-out of certain sales of personal information.
California voters also approved the California Privacy Rights Act (“CPRA”) in November 2020.
−Removed: Effective starting on January 1, 2023, the CPRA will significantly modify the CCPA, including by expanding rights with respect to certain sensitive
−Removed: personal information creating a new state agency for enforcing the CCPA and the CPRA.
−Removed: Other states will continue to shape the data privacy environment nationally.
−Removed: For example, the Virginia Consumer Data Protection Act, or CDPA, becomes effective on January 1, 2023 and the Colorado Privacy Act, or CPA, takes effect on July 1, 2023.
−Removed: Aspects of these state privacy statutes remain unclear, resulting in further legal uncertainty and potentially requiring us to modify our data practices and policies and to incur substantial additional costs and expenses in an effort to comply.
−Removed: Complying with the GDPR, DSL, PIPL, CCPA, CPRA, CDPA, CPA, or other laws, regulations, amendments to or re-interpretations of existing laws and regulations, and contractual or other obligations relating to privacy, data protection, data transfers, data localization, or information security may require us to make changes to our services to enable us or our customers to meet new legal requirements, incur substantial operational costs, modify our data practices and policies, and restrict our business operations.
−Removed: Any actual or perceived failure by us to comply with these laws, regulations, or other obligations may lead to significant fines, penalties, regulatory investigations, lawsuits, significant costs for remediation, damage to our reputation, or other liabilities.
−Removed: If we fail to comply with the relevant privacy and security laws and regulations, it could result in regulatory investigations and penalties, which could lead to negative publicity and may cause our investors to lose confidence in the effectiveness of our security measures.
+Added: Effective starting on January 1, 2023, the CPRA made significant modifications to the CCPA, including by expanding rights with respect to certain sensitive personal information and creating a new state agency for enforcing the CCPA.
+Added: Unless and until a federal privacy law that preempts state laws is enacted, states will continue to shape the data privacy environment nationally.
+Added: For example, Virginia enacted the Virginia Consumer Data Protection Act (the “VCDPA”), effective January 1, 2023, Colorado passed the Colorado Privacy Rights Act (the “CPA”), effective July 1, 2023, Connecticut passed the Connecticut Data Privacy Act (the “CDPA”), effective July 1, 2023, and Utah passed the Utah Consumer Privacy Act (the “UCPA”), effective December 31, 2023.
+Added: Many other proposals exist in states across the U.S.
+Added: that could increase our potential liability, increase our compliance costs, and affect our ability to process personal information integral to our business.
+Added: Aspects of these state privacy statutes remain unclear, resulting in further legal uncertainty and potentially requiring us to modify our data practices and policies and to incur substantial additional compliance costs.
+Added: Complying with various existing, proposed, or yet to be proposed laws, regulations, amendments to or re-interpretations of existing laws and regulations, and contractual or other obligations relating to privacy, data protection, data transfers, data localization, or information security may require us to make changes to our services to enable us or our customers to meet new legal requirements, incur substantial operational costs, modify our data practices and policies, and restrict our business operations.
+Added: Any actual or perceived failure by us to comply with these laws, regulations, or other obligations may lead to significant fines, penalties, regulatory investigations, lawsuits, costs for remediation, and other liabilities.
+Added: For instance, regulatory investigations or penalties related to data protection failures could lead to negative publicity and may cause our investors to lose confidence in the effectiveness of our security measures.
Any inability, or perceived inability, to adequately address privacy and data protection concerns, or comply with applicable laws, regulations, policies, industry standards, contractual obligations, or other legal obligations also could result in additional cost and liability and could damage our reputation and adversely affect our business.
−Removed: We have increasingly undertaken business initiatives to increase the number and type of investment products we offer to retail investors, which could expose us to new and greater levels of risk.
−Removed: Although retail investors have been part of our historic distribution efforts, we have increasingly undertaken business initiatives to increase the number and type of investment products we offer to high net worth individuals, family offices and other mass affluent investors.
−Removed: In some cases we seek to distribute our unregistered funds to such retail investors indirectly through feeder funds sponsored by brokerage firms, private banks or other similar third-parties, and in other cases directly to the qualified clients of private banks, independent investment advisors and brokers.
−Removed: In other cases we offer registered investment products specifically designed for direct investment by both retail and institutional investors.
−Removed: Our initiatives to access retail investors entail the investment of resources and our objectives may not be fully realized.
−Removed: Accessing retail investors and selling retail directed products exposes us to new and greater levels of risk, including heightened litigation and regulatory enforcement risks.
−Removed: To the extent we distribute retail products through new channels, including through unaffiliated firms, we may not be able to effectively monitor or control the manner of their distribution, which could result in litigation against us, including with respect to, among other things, claims that products distributed through such channels are distributed to customers for whom they are unsuitable or distributed in any other inappropriate manner.
−Removed: Although we seek to ensure through both due diligence and supervisory procedures that the channels through which retail investors access our investment products conduct themselves responsibly, to the extent that our investment products are being distributed through third parties, we are exposed to reputational damage and possible legal liability to the extent such third parties improperly sell our products to investors.
−Removed: Similarly, the hiring of employees to oversee independent advisors and brokers presents risks if they fail to follow training, review and supervisory procedures.
−Removed: In addition, the distribution of retail products through new channels whether directly or through market intermediaries could expose us to additional regulatory risk in the form of allegations of improper conduct and/or actions by state and federal regulators against us with respect to, among other things, product suitability, conflicts of interest and the adequacy of disclosure to customers to whom our products are distributed through those channels.
Extensive regulation in the United States and abroad affects our activities, increases the cost of doing business and creates the potential for significant liabilities and penalties.
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The regulatory regimes to which such businesses are subject may, among other things, condition our funds’ ability to invest in those businesses upon the satisfaction of applicable ownership restrictions or qualification requirements.
−Removed: to obtain or maintain any regulatory approvals necessary for our funds to invest in such industries may disqualify our funds from participating in certain investments or require our funds to divest themselves of certain assets.
−Removed: In recent years, the SEC and its staff have focused on issues relevant to global investment firms and have formed specialized units devoted to examining such firms and, in certain cases, bringing enforcement actions against the firms, their principals and their employees.
−Removed: We expect a greater level of SEC enforcement activity under the current Administration, and while we believe that we have a robust compliance program in place, it is possible this enforcement activity will target practices that we believe are compliant and which were not targeted by the prior Administration.
+Added: Our failure to obtain or maintain any regulatory approvals necessary for our funds to invest in such industries may disqualify our funds from participating in certain investments or require our funds to divest themselves of certain assets.
+Added: In recent years, the SEC and its staff have focused on issues relevant to global investment firms and have formed specialized units devoted to examining such firms and, in certain cases, brought enforcement actions against the firms, their principals and their employees.
+Added: We have seen and expect to continue to see a greater level of SEC enforcement activity under the current Administration, and while we believe that we have a robust compliance program in place, it is possible this enforcement activity will target practices that we believe are compliant and that were not targeted by the prior Administration.
Recent SEC focus areas have also included the use and compensation of, and disclosure regarding, operating partners or consultants, outside business activities of firm principals and employees and group purchasing arrangements and general conflicts of interest disclosures.
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While we believe we have made appropriate and timely disclosures regarding the engagement and compensation of our operating executives and senior advisors, the SEC staff may disagree.
−Removed: The SEC has also signaled that it will continue to focus on issues specific to private investment funds, including performance advertising, the inclusion of preferred liquidity and disclosure terms in side letters, transparency of fund fees and expenses, and reporting of information to the SEC on Form ADV and Form PF, including proposed amendments to Form PF that would require enhanced disclosure with shorter filing deadlines.
−Removed: Any new rulemaking by the SEC in these areas could have an impact on our business practices and result in additional operational, administrative and compliance burden and could potentially result in reductions to our revenue, earnings and cash flow.
−Removed: We also regularly are subject to requests for information and informal or formal investigations by the SEC and other regulatory authorities, with which we routinely cooperate.
+Added: The SEC has also signaled that it will continue to focus on issues specific to private investment funds, including performance advertising, the inclusion of preferred liquidity and disclosure terms in side letters, transparency of fund fees and expenses, and reporting of information to the SEC on Form ADV and Form PF, including proposed amendments to Form ADV that would require enhanced disclosure regarding cybersecurity incidents and ESG practices and proposed amendments to Form PF that would introduce “current reporting” requirements for certain events and require enhanced disclosure regarding fund investments and structures.
+Added: Any new rulemaking by the SEC in these areas could have an impact on our business practices and result in additional operational, administrative and compliance burden and costs and could potentially result in reductions to our revenue, earnings and cash flow.
+Added: See “Risks Related to Regulation and Litigation—Financial regulations and changes thereto in the United States could adversely affect our business and the possibility of increased regulatory focus could result in additional burdens and expenses on our business.” We also regularly are subject to requests for information and informal or formal investigations by the SEC and other regulatory authorities, with which we routinely cooperate.
In the current environment, even historical practices that have been previously examined are being revisited.
+Added: For example, as part of a sweep investigation of financial services and investment advisory firms, in October 2022, we received a request for information from the SEC related to the preservation of certain types of electronic business communications (e.g., text messages and messages on WhatsApp, WeChat, and similar applications).
+Added: We intend to cooperate fully with the SEC’s inquiry.
These additional regulatory requirements will increase our compliance costs and may expose us to liabilities and penalties if we fail to comply with the applicable laws, rules and regulations.
−Removed: In February 2022, the SEC voted to propose new rules and amendments (collectively, the “SEC Proposed Rule”) to existing rules under the Advisers Act specifically related to registered advisers and their activities with respect to private funds.
−Removed: If enacted, the SEC Proposed Rule could have a significant impact on advisers to private funds, including Carlyle.
−Removed: In particular, the SEC has proposed to limit circumstances in which a fund manager can be indemnified by a private fund;
−Removed: increase reporting requirements by private funds to investors concerning performance, fees and expenses;
−Removed: require registered advisers to obtain an annual audit for private funds and also require such fund’s auditor to notify the SEC upon the occurrence of certain material events;
−Removed: enhanced requirements, including the need to obtain a fairness opinion and make certain disclosures, in connection with adviser-led secondary transactions (also known as GP-led secondaries);
−Removed: prohibit advisers from engaging in certain practices, such as, without limitation, charging accelerated fees for unperformed services or fees and expenses associated with an examination to private fund clients and seeking reimbursement, indemnification, exculpation or otherwise limiting an adviser’s liability for certain activities;
−Removed: and impose limitations and new disclosure requirements regarding preferential treatment of investors in private funds in side letters or other arrangements with an adviser.
−Removed: If adopted, including with modifications, this new SEC Proposed Rule could have a significant effect on private fund advisers and their operations, including increasing compliance burdens and associated regulatory costs, reducing the ability to receive expense or indemnification reimbursements, and enhancing the risk of regulatory action, including public regulatory sanctions and may result in a change to our practices and create additional regulatory uncertainty.
−Removed: Further, we note that in connection with the SEC Proposed Rule, if such rule were to be enacted, it could also significantly increase the cost of insurance, specifically D&O and E&O insurance, or may even make such insurance coverage unavailable.
We regularly rely on exemptions from various requirements of the Securities Act of 1933, as amended (the “Securities Act”), the Exchange Act, the Investment Company Act, the Commodity Exchange Act, and the U.S.
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If for any reason these exemptions were to become unavailable to us, we could become subject to regulatory action or third-party claims and our business could be materially and adversely affected.
−Removed: For example, in 2014, the SEC amended Rule 506 of Regulation D under the Securities Act to impose “bad actor” disqualification provisions which ban an issuer from offering or selling securities pursuant to the safe harbor in Rule 506 if the issuer, or any other “covered person”, is the subject of a criminal,
−Removed: regulatory or court order or other disqualifying event” under the rule which has not been waived by the SEC.
+Added: For example, in 2014, the SEC amended Rule 506 of Regulation D under the Securities Act to impose “bad actor” disqualification provisions that ban an issuer from offering or selling securities pursuant to the safe harbor in Rule 506 if the issuer, or any other “covered person,” is the subject of a criminal, regulatory or court order or other disqualifying event under the rule which has not been waived by the SEC.
The definition of “covered person” under the rule includes an issuer’s directors, general partners, managing members and executive officers;
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Consequently, these regulations often serve to limit our activities and impose burdensome compliance requirements.
−Removed: “Business —Regulatory and Compliance Matters.”
+Added: See Item 1 “Business—Regulatory and Compliance Matters.”
We may become subject to additional regulatory and compliance burdens as we expand our product offerings and investment platform, including registered product offerings for retail investors.
−Removed: For example, we have a number of closed-end investment companies in our Global Credit segment that are subject to the Investment Company Act and the rules thereunder, which, among other things, impose regulatory restrictions on principal transactions between, and joint transactions among, the investment company and certain of its affiliates, including its investment adviser.
+Added: For example, we have a number of closed-end investment companies in our Global Credit and Global Investment Solutions segments that are subject to the Investment Company Act and the rules thereunder, which, among other things, impose regulatory restrictions on principal transactions between, and joint transactions among, the investment company and certain of its affiliates, including its investment adviser.
Certain of these investment companies are subject to additional securities law requirements due to their status as a publicly-traded issuer, as well as the listing standards of the applicable national securities exchange.
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Anti-corruption laws are interpreted broadly and prohibit us from authorizing, offering, or providing, directly or indirectly, improper payments or things of value to recipients in the public or private sector.
−Removed: In addition, we are subject to the accounting and internal controls provisions of the FCPA, which require us to maintain accurate books and records and a system of internal controls sufficient to detect and prevent corrupt conduct.
+Added: In addition, we are subject to the accounting and internal controls
+Added: provisions of the FCPA, which require us to maintain accurate books and records and a system of internal controls sufficient to detect and prevent corrupt conduct.
We are also subject to U.S.
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Commerce Department, the Office of Foreign Assets Control (“OFAC”) of the U.S.
−Removed: Treasury Department, and the U.S.
+Added: Department of the Treasury, and the U.S.
Department of State.
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Our funds’ portfolio companies’ compliance policies and procedures may not prevent all instances of money laundering or bribery, or other prohibited transactions, including those arising from actions by employees, representatives, or other agents, for which we or they might be held responsible.
−Removed: These various anti-corruption, anti-money laundering, export control, and sanctions laws and regulations relate to a number of aspects of our businesses, including servicing existing fund investors, finding new fund investors and sourcing new investments, as well as the activities of our funds’ portfolio companies, and require ongoing monitoring of both investors and portfolio assets.
+Added: These various anti-corruption, anti-money laundering, export control, and sanctions laws and regulations relate to several aspects of our businesses, including servicing existing fund investors, finding new fund investors and sourcing new investments, as well as the activities of our funds’ portfolio companies, and require ongoing monitoring of both investors and portfolio assets.
government regulators, including the U.S.
Department of Justice, the SEC and OFAC, have devoted more resources to enforcement of the FCPA and export control and sanctions laws as enforcement has become more of a priority in recent years.
−Removed: A number of other countries, including countries where we and our funds’ portfolio companies maintain operations or conduct business, have also significantly expanded their enforcement activities, especially in regards to anti-corruption.
+Added: Several other countries, including countries where we and our funds’ portfolio companies maintain operations or conduct business, have also significantly expanded their enforcement activities, especially regarding anti-corruption.
Recently, the U.S.
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While we have developed and implemented policies and procedures designed to ensure compliance by us and our personnel with the FCPA and other anti-corruption laws, as well as export control and economic sanctions laws, we cannot ensure that none of our employees, representatives, contractors, partners, and agents will take actions in violations of our policies and applicable law, for which we may be ultimately held responsible.
−Removed: Any determination that we
−Removed: have violated these laws could subject us to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct, securities litigation, disbarment and a general loss of investor confidence, any one of which could have a material adverse effect on our results of operations, financial condition and cash flow, as well as our reputation.
+Added: Any determination that we have violated these laws could subject us to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct, securities litigation, disbarment and a general loss of investor confidence, any one of which could have a material adverse effect on our results of operations, financial condition and cash flow, as well as our reputation.
In addition, the Iran Threat Reduction and Syria Human Rights Act of 2012 (the “ITRA”) expanded the scope of U.S.
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On January 18, 2022, the U.S.
−Removed: Department of Justice Antitrust Division and the U.S.
−Removed: Federal Trade Commission (“FTC”) launched a joint public inquiry aimed at strengthening enforcement against illegal mergers, citing evidence that many industries across the economy are becoming more concentrated and less competitive.
+Added: Department of Justice Antitrust Division and the FTC launched a joint public inquiry aimed at strengthening enforcement against illegal mergers, citing evidence that many industries across the economy are becoming more concentrated and less competitive.
Antitrust regulators in several foreign jurisdictions have announced similar antitrust enforcement initiatives.
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In addition, we may be subject to successor liability for FCPA violations or other acts of bribery, or violations of applicable anti-corruption, sanctions or export control laws committed by companies in which we or our funds invest or which we or our funds acquire.
−Removed: It is unclear what impact the United Kingdom’s exit from the European Union will have on the Company or the fund portfolio companies.
−Removed: The UK held a referendum in June 2016 on whether to remain a member state of the EU, in which a majority of voters voted to leave the EU.
−Removed: The UK officially left the EU on January 31, 2020, and a transition period of 11 months commenced on this date to allow for the negotiation of a new trade agreement.
−Removed: This transition period ended on December 31, 2020.
−Removed: Various EU laws have been adopted into domestic UK legislation and certain transitional regimes and deficiency-correction powers exist to ease the transition.
−Removed: The UK and the EU announced, on December 24, 2020, that they had reached agreement on a new Trade and Cooperation Agreement (the “TCA”), which addresses the future relationship between the parties.
−Removed: The TCA was approved by the UK Parliament on December 30, 2020.
−Removed: Due to the TCA only being agreed shortly before the end of the transition period, it applied on a provisional basis in the EU until it was formally ratified by the European Parliament and has applied permanently from May 1, 2021.
−Removed: The TCA covers, for example, measures to preserve tariff-free trade in goods and the ability of UK nationals to travel to the EU on business but defers other issues.
−Removed: While the TCA includes a commitment by the UK and the EU to keep their markets open for persons wishing to provide financial services through a permanent establishment, it does not substantively address future cooperation in the financial services sector or reciprocal market access into the EU by UK-based firms under equivalence arrangements or otherwise.
−Removed: While the TCA provides clarity in some areas, the impact of Brexit on our business operations in the UK and the EU, and on the private investment funds industry and global financial markets more broadly, remains uncertain.
−Removed: This is driven in part by the ongoing uncertainty relating to equivalence and the extent to which the EU will grant reciprocal access to UK firms in the financial services sector.
−Removed: As a new agreement, the implications and operation of the TCA may also be subject to change and/or develop at short notice.
−Removed: In any case, as of January 1, 2021, our UK FCA-authorized affiliates, CECP and CELF, ceased to be entitled to exercise single market passport rights to provide investment services in or into the EEA on a cross-border services basis.
−Removed: Certain EEA investor-facing activities previously carried on by those firms have been reorganized so that they are performed now by different, EEA established affiliates under alternative licensing arrangements.
−Removed: These arrangements may subject us to additional regulatory obligations and may impede our ability to raise capital from EEA investors.
−Removed: In this respect and otherwise, uncertainty about the way in which these and other complex issues will be resolved could adversely affect the Company, its investment funds and portfolio companies (especially if its investment funds include, or expose them to, businesses that depend on access to the single market, the customs union, or whose value is affected adversely by the UK’s future relationship with the EU).
−Removed: The size and importance of the UK’s economy, coupled with uncertainty or unpredictability about the precise nature of its future legal, political and economic relationship with the EU following the implementation of the TCA (and any subsequent discussions between the UK and EU in respect of matters not within its scope) may continue to cause instability, significant currency fluctuations and/or other adverse effects on international markets, international trade agreements and/or other existing cross-border cooperation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise).
−Removed: In addition, Brexit could have a destabilizing effect if any other member states were to consider withdrawing from the EU.
−Removed: The decision for any other member state to withdraw from the EU could exacerbate such uncertainty and instability and may present similar and/or additional potential risks and consequences for the Company, its investment funds and fund portfolio companies.
−Removed: These complex issues and other by-products of Brexit, such as the tightening of credit in the UK commercial real estate market, may also increase the costs of having operations, conducting business and making investments in the UK and Europe.
−Removed: As a result, the performance of our funds which are focused on investing in the UK and to a lesser extent across Europe, may be disproportionately affected compared to those funds that invest more broadly across global geographies or are focused on different regions.
−Removed: The uncertainty surrounding the precise nature of the UK’s future legal relationship with the EU may continue to be a source of significant exchange rate fluctuations and/or other adverse effects on international markets.
−Removed: Unhedged currency fluctuations have the ability to adversely affect our funds and their underlying portfolio companies.
−Removed: Further, the development of the UK’s future legislative approach remains uncertain.
−Removed: The UK may elect in the future to repeal, amend or replace EU laws, which could exacerbate the uncertainty and result in divergent UK national laws and regulations.
−Removed: Changes to the regulatory regimes in the UK or the EU and its member states could materially affect our business prospects and opportunities and increase our costs.
−Removed: In addition, Brexit could potentially disrupt the tax jurisdictions in which we operate and affect the tax benefits or liabilities in these or other jurisdictions in a manner that is adverse to us and/or our funds.
−Removed: Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.
Financial regulations and changes thereto in the United States could adversely affect our business and the possibility of increased regulatory focus could result in additional burdens and expenses on our business.
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In June 2020, U.S.
−Removed: federal regulatory agencies adopted additional revisions to the Volcker Rule’s current restrictions on banking entities sponsoring and investing in certain covered hedge funds and private equity funds, including by adopting new exemptions
−Removed: allowing banking entities to sponsor and invest without limit in credit funds, venture capital funds, customer facilitation funds and family wealth management vehicles (the “Covered Fund Amendments”).
+Added: federal regulatory agencies adopted additional revisions to the Volcker Rule’s current restrictions on banking entities sponsoring and investing in certain covered hedge funds and private equity funds, including by adopting new exemptions allowing banking entities to sponsor and invest without limit in credit funds, venture capital funds, customer facilitation funds and family wealth management vehicles (the “Covered Fund Amendments”).
The Covered Fund Amendments also loosen certain other restrictions on extraterritorial fund activities and direct parallel or co-investments made alongside covered funds.
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The Dodd-Frank Act also imposes a regulatory structure on the “swaps” market, including requirements for clearing, exchange trading, capital, margin, reporting, and recordkeeping.
−Removed: The CFTC has finalized many rules applicable to swap market participants, including business conduct standards for swap dealers, reporting and recordkeeping, mandatory clearing for certain swaps, exchange trading rules applicable to swaps, initial and variation margin requirements for uncleared swap transactions and regulatory requirements for cross-border swap activities.
+Added: The CFTC has finalized many rules applicable to swap market participants, including business conduct standards for swap dealers, reporting and recordkeeping, mandatory clearing for certain swaps, exchange trading rules applicable to swaps, initial and variation margin requirements for uncleared swap transactions
+Added: and regulatory requirements for cross-border swap activities.
These requirements could reduce market liquidity and adversely affect our business, including by reducing our ability to enter swaps.
−Removed: The Dodd-Frank Act amended the Exchange Act to direct the Federal Reserve and other federal regulatory agencies to adopt rules requiring sponsors of asset-backed securities (or a majority-owned affiliate thereof) to retain at least 5% of the credit risk relating to the assets collateralizing the asset-backed securities (the “U.S.
−Removed: Risk Retention Rules”).
−Removed: Risk Retention Rules were issued by five federal banking and housing agencies and the SEC in October 2014 and became effective on December 24, 2016.
−Removed: A 2018 order by the United States District Court for the District of Columbia held that the U.S.
−Removed: risk retention rules do not apply to managers of open-market CLOs (i.e., CLOs for which the underlying assets are not transferred by the manager to the CLO issuer via a sale).
−Removed: As a result, we have determined that we are not subject to the U.S.
−Removed: Risk Retention Rules in respect of our open-market CLO transactions and do not intend to act in accordance with the various restrictions the U.S.
−Removed: Risk Retention Rules imposed on sponsors of securitization transactions.
−Removed: We continue to review this decision and its ultimate impact on our business.
The Dodd-Frank Act authorizes federal regulatory agencies to review and, in certain cases, prohibit compensation arrangements at financial institutions that give employees incentives to engage in conduct deemed to encourage inappropriate risk taking by covered financial institutions.
On May 16, 2016, the SEC and other federal regulatory agencies proposed a rule that would apply requirements on incentive-based compensation arrangements of “covered financial institutions,” including certain registered investment advisers and broker-dealers above a specific asset threshold.
−Removed: This, if adopted, could limit our ability to recruit and retain investment professionals and senior management executives.
+Added: This rule, if adopted, could limit our ability to recruit and retain investment professionals and senior management executives.
However, the proposed rule remains pending and may be subject to significant modifications.
+Added: In addition, as directed under the Dodd-Frank Act, on October 26, 2022, the SEC adopted final rules under which companies listed on the NYSE and Nasdaq will be required to adopt “clawback” policies that mandate recovery by companies of certain incentive-based compensation awarded to current and former executives in the event of an accounting restatement.
In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act became law, which modified automatic additional regulatory compliance issues for financial entities that were deemed “Systemically Important Financial Institutions” (SIFI) from $50 billion AUM to $250 billion AUM.
There is legislative risk under the current Administration that such designation will revert back to $50 billion and expand its application to include private equity asset management firms.
−Removed: Following the 2020 presidential and congressional elections in the U.S.
−Removed: there has been an increased risk of legislative and regulatory action that could adversely limit and affect our and our funds’ portfolio companies’ business.
+Added: Following the 2020 presidential and congressional elections in the United States, there has been an increased risk of legislative and regulatory action that could adversely limit and affect our and our funds’ portfolio companies’ business.
For example, proposed legislation that was introduced into the U.S.
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(6) increase tax rates on carried interest;
−Removed: and (7) prohibit portfolio companies from paying dividends or repurchasing their shares or
−Removed: outsourcing jobs at portfolio companies during the first two years following the acquisition of the portfolio company.
+Added: and (7) prohibit portfolio companies from paying dividends or repurchasing their shares or outsourcing jobs at portfolio companies during the first two years following the acquisition of the portfolio company.
In addition, in August 2021, legislation was introduced in the Senate that would require holders of carried interest to recognize a specified amount of deemed compensation income each year regardless of whether the investment partnership recognizes income or gain and regardless of whether and when the holders receive distributions in respect of their carried interests.
If these proposed bills or parts thereof, or other similar legislation, were to become law, it could negatively impact us, our funds’ portfolio companies and our investors.
+Added: The SEC’s amended rule for investment adviser marketing became effective in November 2022.
+Added: The rule increases regulatory obligations and potential scrutiny and imposes more prescriptive requirements on investment advisers’ marketing activities, including but not limited to prohibitions on advertisements that are misleading or contain material statements that an investment adviser cannot substantiate as well as requirements for performance advertising and the use of placement agent arrangements.
+Added: The rule impacts the marketing of certain of our funds and other investment advisory functions.
+Added: Compliance with the new rule entails compliance and operational costs.
+Added: In September 2022, the SEC staff published a risk alert indicating that the staff will conduct a number of specific national initiatives, as well as a broad review through the examination process, for compliance with the new marketing rule.
Future legislation, regulation or guidance may have an adverse effect on the fund industry generally and/or us specifically.
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The SEC has also signaled that it intends to pursue additional regulation of private fund fees and conflicts of interest, including potentially requiring greater transparency of fund fees and expenses:
+Added: • In February 2022, the SEC proposed new rules and amendments to existing rules under the Advisers Act specifically related to registered advisers and their activities with respect to private funds (the “SEC Proposed Rule”).
+Added: If enacted, the proposed rules and amendments could have a significant impact on advisers to private funds, including Carlyle.
+Added: In particular, the SEC has proposed to:
+Added: limit circumstances in which a fund manager can be indemnified by a private fund;
+Added: increase reporting requirements by private funds to investors concerning performance, fees and expenses;
+Added: require registered advisers to obtain an annual audit for private funds and also require such fund’s auditor to notify the SEC
+Added: upon the occurrence of certain material events;
+Added: enhance requirements, including the need to obtain a fairness opinion and make certain disclosures, in connection with adviser-led secondary transactions (also known as general partner-led secondaries);
+Added: prohibit advisers from engaging in certain practices, such as, without limitation, charging accelerated fees for unperformed services or fees and expenses associated with an examination to private fund clients;
+Added: and impose limitations and new disclosure requirements regarding preferential treatment of investors in private funds in side letters or other arrangements with an adviser.
+Added: The SEC also proposed amendments to the existing books and records and compliance rules for investment advisers that complement these rules and require that all registered advisers document their annual compliance review in writing.
+Added: The SEC has indicated that it will seek to have a final vote to adopt these proposed regulations in 2023.
+Added: If adopted, including with modifications, this new SEC Proposed Rule could have a significant effect on private fund advisers and their operations, including increasing compliance burdens and associated regulatory costs, increasing litigation risk, reducing the ability to receive expense or indemnification reimbursements, and enhancing the risk of regulatory action, including public regulatory sanctions and may result in a change to our practices and create additional regulatory uncertainty.
+Added: Further, we note that in connection with the SEC Proposed Rule, if such rule were to be enacted, it could also significantly increase the cost of insurance, specifically D&O and E&O insurance, or may even make such insurance coverage unavailable.
+Added: • In January and August 2022, the SEC proposed changes to Form PF, a confidential form relating to reporting by private funds and intended to be used for systemic risk oversight purposes.
+Added: These proposals, which represent an expansion of existing reporting obligations, if adopted, would require private fund managers, including us, to report to the SEC within one business day the occurrence of certain fund-related and portfolio company events.
+Added: The SEC has indicated that it will seek to have a final vote to adopt these regulations in 2023.
+Added: Increased regulations and disclosure obligations could result in our incurring higher costs if new laws or disclosure obligations require us to spend more time, hire additional personnel, or buy new technology to comply effectively.
+Added: • In February 2022, the SEC issued two releases that proposed, respectively, rule amendments to accelerate the filing deadlines for companies to make filings of beneficial ownership and to expand the scope of instances where such a filing is required, and rule proposals to require certain asset managers to file with the SEC on a monthly basis certain data related to their short sales activity.
+Added: The SEC has indicated that it will seek to have a final vote to adopt these proposed regulations in 2023.
+Added: If these proposals are adopted, we may need to devote additional resources to fulfilling our beneficial ownership and short-sale reporting obligations and there may be additional regulatory attention focused on such activities.
+Added: • In October 2022, the SEC proposed a new rule and related amendments that would impose substantial obligations on registered investment advisers to conduct initial due diligence and ongoing monitoring of a broad universe of service providers that we may use in our investment advisory business.
+Added: If these proposed rules take effect, they could increase limitations on our ability to use service providers in connection with our investment advisory business, impose additional costs and burdens on our use and monitoring of service providers, and subject us to heightened regulatory scrutiny.
+Added: • The SEC has also proposed numerous new and amended rules that would apply to market participants that we regularly interact with as counterparties or to our other business activities, including broker-dealers’ execution of trades and clearance and settlement of trades.
+Added: The SEC has indicated that it will seek to have a final vote to adopt many of these proposed regulations in 2023.
+Added: If these proposed rules become effective, they could affect our business by making it more costly financially or burdensome for us to engage in certain business transactions.
+Added: In addition, an amended SEC rule and subsequent guidance would, beginning in January 2025, prohibit broker dealers from providing price quotations for certain private debt security offerings unless information about the issuer of these securities is current and publicly available.
+Added: This rule could affect our ability to trade in certain private debt securities.
+Added: In September 2022, the SEC announced charges against 15 broker-dealers and one affiliated investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.
+Added: The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of more than $1.1 billion, and agreed to implement improvements to their compliance policies and procedures to settle these matters.
+Added: As part of a sweep investigation of financial services and investment advisory firms, in October 2022, we received a request for information from the SEC related to the preservation of certain types of electronic business communications (e.g., text messages and messages on WhatsApp, WeChat, and similar applications).
+Added: We intend to cooperate fully with the SEC’s inquiry.
It is difficult to determine the full extent of the impact on us of any new laws, regulations or initiatives that may be proposed or whether any of the proposals will become law.
2 unchanged sentences
Compliance with any new laws or regulations (including recent heightened SEC scrutiny regarding adviser compliance with advisers’ own internal policies) could make compliance more difficult and expensive, affect the manner in which we conduct our business and adversely affect our profitability.
+Added: Changing regulations regarding derivatives and commodity interest transactions could adversely impact various aspects of our business .
+Added: The regulation of derivatives and commodity interest transactions in the United States and other countries is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action.
+Added: We and our affiliates enter into derivatives transactions for various purposes, including to manage the financial risks related to our business.
+Added: Accordingly, the impact of this evolving regulatory regime on our business is difficult to predict, but it could be substantial and adverse.
+Added: Managers of certain pooled investment vehicles with exposure to certain types of derivatives may be required to register with the CFTC as commodity pool operators (“CPOs”) and/or commodity trading advisors (“CTAs”) and become members of the National Futures Association (the “NFA”).
+Added: As such, certain of our or our subsidiaries’ risk management or other commodities interest-related activities may be subject to CFTC oversight.
+Added: Consequently, certain CFTC rules expose global investment firms, such as us, to increased registration and reporting requirements in connection with transactions in futures, swaps and other derivatives regulated by the CFTC.
+Added: These regulations have required us to reassess certain business practices related to our pooled vehicles, consider registration of certain entities with the CFTC or file for additional exemptions from such registration requirements.
+Added: In addition, as a result of their derivatives-related activities, certain of our entities also may be subject to a wide range of other regulatory requirements, such as:
+Added: • potential compliance with certain commodities interest position limits or position accountability rules;
+Added: • administrative requirements, including recordkeeping, confirmation of transactions and reconciliation of trade data;
+Added: • mandatory central clearing and collateral requirements.
+Added: Our business may incur increased ongoing costs associated with monitoring compliance with the CFTC registration and exemption obligations across platforms and complying with the various reporting and record-keeping requirements.
+Added: In addition, newly instituted and amended regulations could significantly increase the cost of entering into derivative contracts (including through requirements to post collateral that could adversely affect our available liquidity), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks that we encounter, reduce our ability to restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties.
+Added: If we reduce our use of derivatives as a result of such regulations (and any new regulations), our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to satisfy our debt obligations or plan for and fund capital expenditures.
The short-term and long-term impact of the Basel capital standards is uncertain.
−Removed: In June 2011, the Basel Committee on Banking Supervision (“Basel Committee”), an international body comprised of senior representatives of bank supervisory authorities and central banks from 27 countries, including the United States, announced the final framework for a comprehensive set of capital and liquidity standards, commonly referred to as “Basel III,” for internationally active banking organizations and certain other types of financial institutions.
+Added: In June 2011, the Basel Committee on Banking Supervision, an international body comprised of senior representatives of bank supervisory authorities and central banks from 27 countries, including the United States, announced the final framework for a comprehensive set of capital and liquidity standards, commonly referred to as “Basel III,” for internationally active banking organizations and certain other types of financial institutions.
The Basel III standards were revised in 2017 as part of a package of reforms referred to as “Basel IV” by the banking industry.
These standards generally require banks to hold more capital, predominantly in the form of common equity, than under the previous capital framework, reduce leverage and improve liquidity standards.
−Removed: federal banking regulators have adopted, and continue to adopt, final regulations to implement Basel III for U.S.
+Added: federal banking regulators have adopted, and continue to adopt, final regulations to implement these standards for U.S.
banking organizations.
The ongoing adoption of these rules could restrict the ability of banks to maintain certain levels or types of capital market exposures under the present structure of their balance sheets, and cause these entities to raise additional capital in order to stay active in our marketplaces.
−Removed: As a result, their businesses, results of operations, financial condition or prospects could be materially adversely affected, which in turn could have unintended adverse consequences for us, through higher borrowing costs, reduced access to certain types of credit and increased costs and difficulty for us or our funds to enter into transactions in the normal course of our business.
+Added: As a result, their businesses, results of operations, financial condition or prospects could be
+Added: materially adversely affected, which in turn could have unintended adverse consequences for us, through higher borrowing costs, reduced access to certain types of credit and increased costs and difficulty for us or our funds to enter into transactions in the normal course of our business.
Moreover, these increased regulatory responsibilities and increased costs could reduce trading by a number of market participants, which could in turn adversely impact liquidity and increase volatility in the markets and expose our funds to greater risks in connection with their trading activities.
5 unchanged sentences
The legislation consists of the Investment Firm Regulation and the Investment Firm Directive (together “IFR/IFD”).
−Removed: IFR/IFD represents a complete overhaul of "prudential" regulation (i.e.
−Removed: capital adequacy, liquidity adequacy, governance, remuneration policies and practices, public transparency and regulatory reporting) in the EU and substantially increases regulatory capital requirements for certain investment firms and imposes more onerous remuneration rules, and revised and extended internal governance, disclosure, reporting, liquidity, and group “prudential” consolidation requirements (among other things).
+Added: IFR/IFD represents a complete overhaul of “prudential” regulation (i.e., capital adequacy, liquidity adequacy, governance, remuneration policies and practices, public transparency and regulatory reporting) in the EU and substantially increases regulatory capital requirements for certain investment firms and imposes more onerous remuneration rules, and revised and extended internal governance, disclosure, reporting, liquidity, and group “prudential” consolidation requirements (among other things).
IFR/IFD affects AlpInvest, one of our subsidiaries, because it is an alternative investment fund manager in the Netherlands with MiFID top-up permissions to provide investment services.
1 unchanged sentence
The IFPR applies to our subsidiaries that are UK investment firms under the post-Brexit UK-retained Markets in Financial Instruments Directive (as restated, “MiFID II”), namely CECP and CELF.
−Removed: Under the IFPR, among other requirements, both CECP and CELF are required to maintain a more onerous policy on remuneration, set an
−Removed: appropriate ratio between the variable and fixed components of total remuneration and meet requirements on the structure of variable remuneration.
+Added: Under the IFPR, among other requirements, both CECP and CELF are required to maintain a more onerous policy on remuneration, set an appropriate ratio between the variable and fixed components of total remuneration and meet requirements on the structure of variable remuneration.
These requirements may make it more difficult for us to attract and retain staff.
−Removed: IFPR will also result in increased regulatory capital and liquidity adequacy requirements for CECP, in particular, which may increase the costs of doing business and may impede intra-group capital and cash flows.
+Added: IFPR also resulted in increased regulatory capital and liquidity adequacy requirements for CECP, in particular, which may continue to increase the costs of doing business and may impede intra-group capital and cash flows.
The AIFMD was implemented in most jurisdictions in the EEA, on July 22, 2014.
2 unchanged sentences
The UK implemented AIFMD while it was still a member of the EU and “onshored” it as part of UK law, such that similar requirements continue to apply in the UK notwithstanding Brexit.
+Added: Abingworth is authorized in the UK as an AIFM by the FCA.
AlpInvest, one of our subsidiaries, obtained authorization in 2015 and is licensed as an AIFM in the Netherlands.
4 unchanged sentences
Following these reports, the European Commission launched a public consultation relating to its review of the AIFMD in October 2020, which closed on January 29, 2021.
−Removed: In November 2021, the European Commission published draft legislation, commonly referred to as “AIFMD II”.
−Removed: Subject to the EU ordinary legislative process involving the European Parliament and European Council, this is expected to result in amendments to the AIFMD, which will affect firms two years after the legislation comes into force, possibly in 2024.
−Removed: It is unclear at this stage how the AIFMD II will affect us or our subsidiaries.
−Removed: The current draft proposes a number of amendments to the AIFMD, including more onerous delegation requirements, enhanced substance requirements, additional liquidity management provisions for AIFMs to the extent that they manage open-ended AIFs, and revised regulatory reporting and investor disclosures requirements.
−Removed: The draft proposes significant new requirements relating to the activities of funds which originate loans including new restrictions on the structure which such funds may take.
−Removed: It also proposes to introduce new conditions for non-EEA AIFMs, such as certain of our US affiliates, to be able to make use of the national private placement regimes of EEA states, including a condition that the jurisdiction of neither of the AIFM and AIF have been identified as non-cooperative third countries for tax purposes nor deemed by the EU not to comply fully with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and thereby to ensure an effective exchange of information in tax matters.
+Added: In November 2021, the European Commission published draft legislation, commonly referred to as “AIFMD II.” The European Commission’s draft legislation proposed a number of amendments to the AIFMD, including more onerous delegation requirements, enhanced substance requirements, additional liquidity management provisions for AIFMs to the extent that they manage open-ended AIFs, and revised regulatory reporting and investor disclosures requirements.
+Added: The draft proposed significant new requirements relating to the activities of funds that originate loans including new restrictions on the structure that such funds may take.
+Added: In addition, the draft proposed to introduce new conditions for non-EEA AIFMs, such as certain of our US affiliates, to be able to make use of the national private placement regimes of EEA states, including a condition that the jurisdiction of neither of the AIFM and AIF have been identified as non-cooperative third countries for tax purposes nor deemed by the EU not to comply fully with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and thereby to ensure an effective exchange of information in tax matters.
This gives rise to a risk that certain of our AIFs may not be able to take advantage of such regimes to raise capital from EEA investors, potentially with little notice.
+Added: AIFMD II is currently passing through the EU ordinary legislative process, involving scrutiny and amendment by the
+Added: European Council and the European Parliament.
+Added: Agreement on the legislation between the European Commission, European Council and European Parliament is expected to be reached during 2023, after which the final shape of the new regime, and any impact on us or our subsidiaries, will be clearer.
+Added: The new regime will come into force two years after this final agreement is reached and fully approved with implementation currently expected in 2025.
Given the significance of this review process as well as its potential impact on the European fund industry framework, we have been considering the potential impact of AIFMD II on our business, particularly with regard to delegation of certain AIFM duties to third-countries that may affect both operating models of CIM Europe and AlpInvest, extension of the directive to third country firms and a push towards harmonization of the Collective Investment in Transferable Securities (“UCITS”) and AIFMD frameworks.
AIFMD II has the potential to limit market access for our non-EU funds.
−Removed: Further, compliance with AIFMD II may, amongst other things, increase the cost and complexity of raising capital, may slow the pace of fundraising, limit operations, increase operational costs and disadvantage our investment funds as bidders for and potential owners of private companies located in the EEA when compared to non-AIF/AIFM competitors.
+Added: Moreover, compliance with AIFMD II may, among other things, increase the cost and complexity of raising capital, may slow the pace of fundraising, limit operations, increase operational costs and disadvantage our investment funds as bidders for and potential owners of private companies located in the EEA when compared to non-AIF/AIFM competitors.
It is not yet clear to what extent, if any, the UK would reflect AIFMD II in its domestic rules.
2 unchanged sentences
The CBDF Regulation and CBDF Directive lay out, among other things, general principles to be adhered to by fund managers when drafting pre-marketing and marketing communications.
−Removed: It also harmonizes the pre-marketing requirements across the EEA by requiring EU AIFMs to notify their local regulator of their intention to pre-market in certain EEA jurisdictions within two (2) weeks of pre-marketing having begun.
+Added: The legislative instruments also harmonize the pre-marketing requirements across the EEA by requiring EU AIFMs to notify their local regulator of their intention to pre-market in certain EEA jurisdictions within two weeks of pre-marketing having begun.
CIM Europe and AlpInvest began to file such pre-marketing notifications with the CSSF for any new fund and we are working to incorporate the relevant requirements under the CBDF Directive and CBDF Regulation into the firm’s global marketing policy.
1 unchanged sentence
The European solvency framework and prudential regime for insurers and reinsurers, under the Solvency II Directive 2009/138/EC (“Solvency II”), took effect in full on January 1, 2016.
−Removed: Solvency II is a regulatory regime which imposes economic risk-based solvency requirements across all EU Member States and consists of three pillars:
+Added: Solvency II is a regulatory regime that imposes economic risk-based solvency requirements across all EU Member States and consists of three pillars:
Pillar I-quantitative capital requirements, based on a valuation of the entire balance sheet;
2 unchanged sentences
Solvency II is supplemented by European Commission Delegated Regulation (E.U.) 2015/35 (the “Delegated Regulation”), other European Commission “delegated acts” and binding technical standards, and guidelines issued by the European Insurance and Occupational Pensions Authority.
−Removed: The Delegated Regulation sets out detailed requirements for individual insurance and
−Removed: reinsurance undertakings, as well as for groups, based on the overarching provisions of Solvency II, which together make up the core of the single prudential rulebook for insurance and reinsurance undertakings in the EU.
+Added: The Delegated Regulation sets out detailed requirements for individual insurance and reinsurance undertakings, as well as for groups, based on the overarching provisions of Solvency II, which together make up the core of the single prudential rulebook for insurance and reinsurance undertakings in the European Union.
Solvency II sets out stronger capital adequacy and risk management requirements for European insurers and reinsurers and, in particular, dictates how much capital such firms must hold against their liabilities and introduces a risk-based assessment of those liabilities.
−Removed: Solvency II imposes, among other things, substantially greater quantitative and qualitative capital requirements for insurers and reinsurers as well as other supervisory and disclosure requirements.
−Removed: We are not subject to Solvency II;
−Removed: however, many of our European insurer or reinsurer fund investors are subject to this directive, as applied under applicable domestic law.
−Removed: Solvency II may impact insurers’ and reinsurers’ investment decisions and their asset allocations.
−Removed: In addition, insurers and reinsurers will be subject to more onerous data collation and reporting requirements.
−Removed: As a result, there is the potential for Solvency II to have an adverse indirect effect on our businesses by, among other things, restricting the ability of European insurers and reinsurers to invest in our funds and imposing on us extensive disclosure and reporting obligations for those insurers and reinsurers that do invest in our funds.
+Added: In addition, Solvency II imposes, among other things, substantially greater quantitative and qualitative capital requirements for insurers and reinsurers as well as other supervisory and disclosure requirements.
+Added: While we are not subject to Solvency II, many of our European insurer or reinsurer fund investors are subject to this directive, as applied under applicable domestic law.
+Added: Solvency II also may impact insurers’ and reinsurers’ investment decisions and their asset allocations.
+Added: Moreover, insurers and reinsurers will be subject to more onerous data collation and reporting requirements.
+Added: As a result, there is potential for Solvency II to have an adverse indirect effect on our businesses by, among other things, restricting the ability of European insurers and reinsurers to invest in our funds and imposing on us extensive disclosure and reporting obligations for those insurers and reinsurers that do invest in our funds.
A broad review of Solvency II was carried out by the European Commission in 2020 (the “Solvency II 2020 review”), with input from the European Insurance and Occupational Pensions Authority (“EIOPA”).
1 unchanged sentence
On December 17, 2020, EIOPA submitted its opinion on the Solvency II 2020 review to the European Commission.
−Removed: The Solvency II 2020 review is expected to result in amendments to various aspects of Solvency II, although the extent of such amendments is as yet unknown.
+Added: The Solvency II 2020 review is expected to result in amendments to various aspects of Solvency II, although the extent of such amendments is currently unknown.
Following this, on September 22, 2021, the European Commission published proposed legislation to amend the Solvency II Directive.
2 unchanged sentences
The recast Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation (collectively referred to as “MiFID II”) came into effect on January 3, 2018.
−Removed: Although the UK has now withdrawn from the EU, its rules implementing the recast Markets in Financial Instruments Directive continue to have effect and the Markets in Financial Instruments Regulation has been on-shored into UK law (subject to certain amendments to ensure it operates properly in a UK-specific context) in connection with such withdrawal.
+Added: Although the UK has now withdrawn from the EU,
+Added: its rules implementing the recast Markets in Financial Instruments Directive continue to have effect and the Markets in Financial Instruments Regulation has been on-shored into UK law (subject to certain amendments to ensure it operates properly in a UK-specific context) in connection with such withdrawal.
MiFID II amended the existing MiFID regime and, among other requirements, introduced new organizational and conduct of business requirements for investment firms in the EEA.
1 unchanged sentence
MiFID II extended MiFID requirements in a number of areas such as the receipt and payment of inducements (including investment research), suitability and appropriateness assessments, conflicts of interest, record-keeping, costs and charges disclosures, best execution, product design and governance, and transaction and trade reporting.
−Removed: Under MiFID II, national competent authorities are also required to establish position limits in relation to the maximum size of positions which a relevant person can hold in certain commodity derivatives.
+Added: Under MiFID II, national competent authorities are also required to establish position limits in relation to the maximum size of positions that a relevant person can hold in certain commodity derivatives.
The limits apply to contracts traded on trading venues and their economically equivalent OTC contracts.
The position limits established, as amended from time to time, and our ability to rely on any exemption thereunder may affect the size and types of investments we may make.
−Removed: Failure to comply with MiFID II and its associated legislative acts could result in sanctions from national regulators, the loss of market access and a number of other adverse consequences which would have a detrimental impact on our business.
+Added: Failure to comply with MiFID II and its associated legislative acts could result in sanctions from national regulators, the loss of market access and a number of other adverse consequences that would have a detrimental impact on our business.
Certain aspects of MIFID II and Markets in Financial Instruments Regulations (“MiFIR”) are subject to review and change in both the EU and the UK
9 unchanged sentences
AMLD5 was implemented into UK law on January 10, 2020.
−Removed: The changes under AMLD5 include:
−Removed: new more stringent customer due diligence measures and requirements to report discrepancies between information held and the Companies House register and to conduct risk assessments prior to the launch or use of new products, and business practices.
+Added: The changes under AMLD5 include new more stringent customer due diligence measures and requirements to report discrepancies between information held and the Companies House register and to conduct risk assessments prior to the launch or use of new products, and business practices.
AMLD5 has added complexity to our internal processes and any perceived shortcomings in our adoption of AMLD5 could create reputational risks to our business.
1 unchanged sentence
On July 20, 2021, the European Commission presented an ambitious package of legislative proposals to strengthen the EU’s anti-money laundering and countering the financing of terrorism (AML/CFT) rules, including the creation of a new pan-EU supervisory authority to combat money laundering.
−Removed: The UK government has not yet implemented AMLD6.
+Added: The UK government opted out of AMLD6.
Securitization Regulation.
Regulation (EU) 2017/2402 (the “Securitization Regulation”) is a new framework for European securitizations which came into effect on January 1, 2019.
−Removed: There is a risk that a non-EU AIFM that markets funds in the EU which invest in securitization positions could be within scope of certain requirements under the Securitization Regulation.
+Added: There is a risk that a non-EU AIFM that markets funds in the EU that invest in securitization positions could be within scope of certain requirements under the Securitization Regulation.
To the extent a non-EU AIFM is within the scope of the Securitization Regulation, it could only hold a securitization exposure where the originator, sponsor or original lender retains 5% of the securitization.
1 unchanged sentence
The UK has adopted the Securitization Regulation and therefore similar requirements continue to apply in the UK notwithstanding Brexit.
−Removed: Sustainable Finance .
−Removed: We, our funds and their portfolio companies face increasing public scrutiny related to ESG activities.
−Removed: We and they risk damage to our brand and reputation, if we or they fail to act responsibly in a number of areas, such as diversity, equity and inclusion, environmental stewardship, support for local communities, corporate governance and transparency and considering ESG factors in our investment processes.
−Removed: Adverse incidents with respect to ESG activities could impact the value of our brand, or the brand of our funds or their portfolio companies, the cost of our or their operations and relationships with investors, all of which could adversely affect our business and results of operations.
−Removed: Additionally, new regulatory initiatives related to ESG that are applicable to us, our funds and their portfolio companies could adversely affect our business.
−Removed: In May 2018, the European Commission adopted an “action plan on financing sustainable growth.” The action plan is, among other things, designed to define and reorient investment toward sustainability.
−Removed: The action plan contemplates:
−Removed: establishing EU labels for green financial products;
+Added: The UK Government announced in December 2022 that it would consult on reforms to UK financial services regulation, including the Securitization Regulation.
+Added: ESG and Sustainable Finance Regulation .
+Added: New regulatory initiatives related to ESG and sustainable finance that are or will be applicable to us, our funds and their portfolio companies could adversely affect our business.
+Added: In 2018, the European Commission adopted an “action plan on financing sustainable growth” (the “Action Plan”).
+Added: The Action Plan is, among other things, designed to define and reorient investment towards more sustainable economic activities.
+Added: The Action Plan contemplates, among other things, creating an EU green bond standard and establishing EU labels for green financial products;
clarifying asset managers’ and institutional investors’ duties regarding sustainability in their investment decision-making processes;
−Removed: increasing disclosure requirements in the financial services sector around ESG and strengthening the transparency of companies on their ESG policies and introducing a ‘green supporting factor’ in the EU prudential rules for banks and insurance companies to incorporate climate risks into banks’ and insurance companies’ risk management policies.
−Removed: A number of these initiatives are underway and on December 9, 2019, Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial sector was published in the Official Journal of the European Union (the “Sustainable Finance Disclosure Regulation” or “SFDR”).
−Removed: SFDR introduces mandatory sustainability-related transparency requirements for MiFID investment firms providing portfolio management or investment advisory services, and AIFMs.
−Removed: The majority of the provisions of SFDR have applied since March 10, 2021.
−Removed: For us, this primarily impacts our AIFMs by requiring certain firm-level website disclosures regarding how sustainability risks are integrated into investment processes and remuneration practices.
−Removed: In addition, fund-level disclosures are required in relation to the integration of sustainability risks into investment decisions and potential impacts on fund returns.
−Removed: From January 1, 2022, further disclosures in periodic reports are required and, from January 1, 2023 certain template pre-contractual and periodic disclosures must be adopted.
−Removed: Further, firms that offer financial products (such as AIFs) that promote environmental or social characteristics, or which have a sustainable investment objective, will also need to comply with additional disclosure and periodic reporting requirements that are broadly designed to prevent firms from “greenwashing” (i.e., the holding out of a product as having green or sustainable characteristics where this is not, in fact, the case).
−Removed: There is a risk that a significant reorientation in the market following the implementation of these and further measures could be adverse to our portfolio companies if they are perceived to be less valuable as a consequence of, among other things, their carbon footprint or “greenwashing.” There is also a risk that market expectations in relation to the SFDR categorization of financial products could adversely affect our ability to raise capital.
−Removed: In addition, on June 22, 2020, Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment was published in the Official Journal of the European Union (the “Taxonomy Regulation”).
−Removed: The Taxonomy Regulation sets out a framework for classifying economic activities as “environmentally sustainable” and also introduces certain mandatory disclosure and reporting requirements (which supplement those set out in SFDR) for financial products that have an environmentally sustainable investment objective or that promote environmental characteristics.
−Removed: The Taxonomy Regulation takes effect in part from January 2022 and in part from January 2023.
−Removed: A significant amount of detail surrounding these EU sustainable finance initiatives is yet to be revealed and has been further delayed by the COVID-19 pandemic so it is not possible at this stage to fully assess how our business will be affected.
−Removed: We, our funds and their portfolio companies are subject to the risk that similar measures might be introduced in other jurisdictions in which we or they currently have investments or plan to invest in the future.
−Removed: Additionally, compliance with any new laws or regulations increases our regulatory burden and could make compliance more difficult and expensive, affect the manner in which we, our funds or their portfolio companies conduct our businesses and adversely affect our profitability.
−Removed: The UK intends to introduce a new legislative framework focused on implementing the recommendations of the Financial Stability Board Taskforce on Climate-related Financial Disclosures (“TCFD”), in particular by introducing mandatory TCFD-aligned disclosure requirements for UK firms.
−Removed: The FCA published a policy statement with the near-finalized rules on
−Removed: December 17, 2021.
−Removed: The rules capture asset managers including, so far as relevant, certain private fund advisors such as CECP and investment portfolio managers such as CELF, as well as insurers and FCA-regulated pension providers.
−Removed: For the largest in-scope firms (those with over £50 billion in AUM), the rules apply from January 1 2022, with the first public disclosures to be made by June 30, 2023.
−Removed: For those below this threshold but above £5 billion in AUM, the rules will apply from January 1, 2023, with disclosures to be made by June 30, 2024.
−Removed: The impact of this new regime to our business is currently under review.
−Removed: In addition, the UK FCA is consulting on additional sustainability disclosure requirements and sustainability labels for investment products.
−Removed: The FCA published a discussion paper on November 3, 2021, proposing a three-tiered system with different levels of disclosures targeted at different types of investors and different classifications for products according to their sustainability activities and objectives.
−Removed: The FCA is also considering whether to introduce specific sustainability-related requirements for financial advisors and how (if at all) the regime should apply to funds that are being marketed into the UK.
−Removed: A consultation paper is expected to be published in the second quarter of 2022, with the date of application of these new requirements and the full detail of them yet to be provided.
−Removed: We will monitor these developments and how they may impact our businesses.
+Added: increasing disclosure requirements in the financial services sector around sustainability;
+Added: increasing the transparency of companies on their ESG policies and related processes and management systems;
+Added: and introducing a “green supporting factor” in the EU prudential rules for banks and insurance companies to incorporate climate risks and other environmental factors into banks’ and insurance companies’ risk management policies.
+Added: On June 22, 2020, the Official Journal of the European Union published a classification system that establishes a list of environmentally sustainable economic activities and sets out four overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable (Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088, “Taxonomy Regulation”).
+Added: The Taxonomy Regulation, among other things, introduces mandatory disclosure and reporting requirements and supplements the framework set out in the Sustainable Financial Disclosure Regulation (Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector, “SFDR”), which requires certain disclosures in relation to whether and, if so, how sustainability risks and negative impacts on environmental and social factors are taken into account in the investment process and the likely impacts of sustainability risks on the returns of the financial products.
+Added: Financial products that have as their objective “sustainable investment” or that promote binding environmental or social characteristics are required to disclose that objective or those characteristics in pre-contractual disclosures required pursuant to the AIFMD and report on an ongoing basis their performance in achieving that objective or those characteristics in periodic reports produced pursuant to the AIFMD.
+Added: In addition, if a financial product does not promote environmental or social characteristics or does not have as its objective “sustainable investment,” the information to be disclosed in accordance with applicable sectoral legislation must also be followed by a statement indicating that the financial product does not take into account EU criteria for environmentally sustainable economic activities.
+Added: The disclosure requirements in the SFDR are supplemented by Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022, which requires enhanced disclosures in pre-contractual documents, on websites and in periodic reports.
+Added: For us, this primarily impacts our AIFMs and the funds that they manage by requiring certain firm-level disclosures on our website relating to how sustainability risks are integrated into investment processes, consideration of adverse impacts of investment decisions on sustainability factors and transparency of remuneration policies on the integration of sustainability risk, as well as inclusion of certain information in pre-contractual and periodic disclosures required pursuant to the AIFMD.
+Added: We have been working with external counsel to prepare such disclosures and to ensure that relevant internal teams understand the investor relations and other implications of product categorization and reporting.
+Added: In respect of public website disclosure requirements for private funds, we intend to continue to comply with and monitor EU public transparency requirements while also complying with securities offering laws, such as the Securities Act.
+Added: Commission Delegated Regulation (EU) 2021/1255 amends Delegated Regulation (EU) 231/2013 to require that sustainability risks are integrated into the investment decision-making, risk management and compliance functions and processes of EU AIFMs.
+Added: These requirements became effective and apply to us beginning August 1, 2022.
+Added: Commission Delegated Regulation (EU) 2021/1253, amending Regulation (EU) 2017/565, requires, among other things, certain firms to carry out a mandatory assessment of the sustainability preferences of clients;
+Added: integrate sustainability into risk management policies;
+Added: and consider sustainability factors in the product approval and governance process.
+Added: These requirements became effective and apply to us beginning August 2, 2022.
+Added: There is a risk that a significant reorientation in the market following the implementation of these sustainable finance regulations and further measures could be adverse to our portfolio companies if they are perceived to be less valuable as a consequence of, among other things, their carbon footprint or allegations or evidence of “greenwashing.” There is also a risk that market expectations in relation to the SFDR categorization of financial products could adversely affect our ability to raise capital.
+Added: In this respect, sustainable finance initiatives continue to evolve rapidly and it is not possible at this stage to fully assess how our business will be affected with certainty.
+Added: We are monitoring developments in relation to EU sustainable finance as well as corporate sustainability reporting and proposals for laws requiring due diligence of supply chains.
+Added: Guidance from EU policymakers and financial supervisors changes the frame of reference frequently, for example, a recent consultation paper on guidance on the use of ESG-related terms in fund names.
+Added: We, our funds and their portfolio companies are subject to a risk that similar measures might be introduced in other jurisdictions in which we or they currently have investments or plan to invest in the future.
+Added: The FCA has introduced a new regulatory framework focused on implementing the recommendations of the Financial Stability Board Taskforce on Climate-related Financial Disclosures (“TCFD”) and, in particular, by introducing mandatory TCFD-aligned disclosure requirements for certain FCA authorized firms.
+Added: These rules are set out in a new ESG Sourcebook in the Business Standards section of the FCA Handbook of Rules and Guidance (“ESG Sourcebook”).
+Added: The rules capture certain asset managers including, so far as relevant, certain private fund advisors such as CECP and investment portfolio managers such as CELF, as well as insurers and FCA-regulated pension providers.
+Added: There is a phased approach to the implementation of these rules.
+Added: For the largest in-scope firms (those with over £50 billion in AUM calculated as a 3-year rolling average), the rules
+Added: applied beginning January 1, 2022, with the first public disclosures to be made by June 30, 2023.
+Added: For those below this threshold but above £5 billion in AUM (calculated as a 3-year rolling average), the rules will apply beginning January 1, 2023, with disclosures to be made by June 30, 2024.
+Added: On October 25, 2022, the UK FCA published a further consultation and proposal for sustainability disclosure requirements and sustainability labels for investment products (“CP22/20”), which specifies, among other requirements, an anti-greenwashing rule and sustainability-related disclosure requirements in respect of certain financial products and firms.
+Added: CP22/20 focuses on UK-managed funds and investment portfolios and does not cover overseas products marketed in the UK.
+Added: However, the FCA has indicated that it intends to undertake a further consultation on expanding the scope of these requirements potentially to cover overseas products and pension products.
+Added: CP22/20 proposes an anti-greenwashing rule that will apply to all FCA-regulated firms and is expected to become effective immediately on the publication of the final rules, which is currently anticipated for June 30, 2023.
+Added: Additional requirements, which are subject to consultation and subsequent amendments, will also create certain financial product- and firm-related disclosures and are provisionally set to become effective from June 30, 2024 and at certain periodic intervals afterwards.
+Added: This regime diverges from other international sustainability-related disclosure regimes, including the EU SFDR and the SEC proposals.
+Added: We are monitoring these developments and how they may impact our businesses.
+Added: In March 2021, the SEC announced the establishment of an enforcement task force to examine ESG practices and disclosures by public companies and investment managers.
+Added: In 2022, the SEC commenced enforcement actions against at least two investment advisers relating to ESG disclosures and policies and procedures failures, and we expect that there will be a greater level of enforcement activity in this area in the future.
+Added: In addition, in May 2022, the SEC announced two rule proposals that would result in more stringent regulations of ESG funds and ESG-related claims:
+Added: (i) the proposed rule on “Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices” (the “ESG Funds Reporting Rule”) and (ii) the proposed rule on “Investment Company Names,” which would amend Rule 35d-1 (Names Rule) under the 1940 Act.
+Added: Among other changes, these proposals would prevent registered funds other than ESG-focused funds (as defined in the SEC’s enhanced disclosure proposal) from using ESG terminology such as “green,” “sustainable” or “ESG-focused” in their names and require funds that integrate ESG factors into their investment strategies to provide enhanced disclosures regarding ESG strategies, how ESG (including greenhouse gas emissions) is integrated into investment decision-making, and how funds engage with portfolio companies on ESG matters.
+Added: In addition, under the ESG Funds Reporting Rule, funds that make ESG factors a significant or primary consideration in investment decisions would be required, subject to certain exceptions, to report on portfolio company greenhouse gas emissions, including carbon footprint and weighted average carbon intensity.
+Added: In 2022, the SEC also proposed extensive rules aimed at enhancing and standardizing climate-related disclosures in an effort to foster greater consistency, comparability and reliability of climate-related information.
+Added: The proposal, if adopted, would require domestic registrants and foreign private issuers to include certain climate-related information in their registration statements and annual reports, including data regarding greenhouse gas emissions and information regarding climate-related risks and opportunities and related financial impacts, governance, and strategy.
+Added: Although the ultimate date of effectiveness and the final form and substance of the requirements for the proposed rule is not yet known and the ultimate scope and impact on our business is uncertain, compliance with the proposed rule, if finalized, may result in increased legal, accounting and financial compliance costs and make some activities more difficult, time-consuming and costly.
+Added: Moreover, the SEC has also announced that it is working on proposals for mandatory disclosure of certain other ESG-related matters, including with respect to board diversity and human capital management.
+Added: At this time, there is uncertainty regarding the scope of such proposals or when they would become effective.
+Added: As regulations develop, we will consider the implications for our business of the overlapping global measures, and how they fit together.
+Added: Compliance with any new laws or regulations increases our regulatory burden and could make compliance more difficult and expensive, increase the risk that we are subject to enforcement, affect the manner in which we or our portfolio companies conduct our businesses and adversely affect our profitability.
+Added: Compliance with sustainable finance frameworks of this nature, including the Taxonomy Regulation and the SFDR, may create an additional compliance burden and increased legal, compliance, governance, reporting and other costs to us, our funds and their portfolio companies because of the need to collect certain information to meet the disclosure requirements;
+Added: the need to update or develop new policies and processes to meet regulatory requirements and associated ESG commitments, claims and initiatives;
+Added: and changes to the manner in which we, our funds or their portfolio companies conduct business.
+Added: In addition, where there are uncertainties regarding the operation of sustainable finance frameworks, a lack of official, conflicting or inconsistent regulatory guidance, a lack of established market practice and/or data gaps or methodological challenges
+Added: affecting the ability to collect relevant data us and our portfolio companies may be required to engage third party advisors and/or service providers to fulfil the requirements, thereby exacerbating any increase in compliance burden and costs.
+Added: Appointed Representative Arrangements.
+Added: Appointed representative arrangements are an area of increased regulatory focus in the United Kingdom.
+Added: The FCA is reemphasizing the need for principals to take effective responsibility for, and have appropriate systems in place to adequately supervise, their appointed representatives.
+Added: CECP is a principal firm that bears responsibility for CIC.
+Added: On December 8, 2022, the FCA released updated rules (PS22/11) on appointed representatives which include more extensive obligations on principal firms.
+Added: Working with external counsel, we are monitoring developments in this area to ensure CIC and CECP remain compliant.
Leveraged Transactions.
In May 2017, the European Central Bank (“ECB”) issued guidance on leveraged transactions, which applies to significant credit institutions supervised by the ECB in member states of the Euro zone.
−Removed: Under the guidance, credit institutions should have in place internal policies that include a definition of “leveraged transactions”.
−Removed: Loans or credit exposures to a borrower should be regarded as leveraged transactions if:
+Added: Under the guidance, credit institutions should have in place internal policies that include a definition of “leveraged transactions.” Loans or credit exposures to a borrower should be regarded as leveraged transactions if:
(i) the borrower’s post-financing level of leverage exceeds a total debt to EBITDA ratio of 4.0 times;
−Removed: or (ii) the borrower is owned by one or more “financial sponsors”.
−Removed: For these purposes, a financial sponsor is an investment firm that undertakes private equity investments in and/or leveraged buyouts of companies.
−Removed: Following these guidelines, credit institutions in the Euro zone could in the future limit, delay or restrict the availability of credit and/or increase the cost of credit for our investment funds or portfolio companies involved in leveraged transactions.
+Added: or (ii) the borrower is owned by one or more “financial sponsors.” For these purposes, a financial sponsor is an investment firm that undertakes private equity investments in and/or leveraged buyouts of companies.
+Added: Following these guidelines, credit institutions in the Eurozone could in the future limit, delay or restrict the availability of credit and/or increase the cost of credit for our investment funds or portfolio companies involved in leveraged transactions.
This policy area remains under close scrutiny and further guidance could be issued on short notice in the future.
5 unchanged sentences
The definition of “credit servicer” in the Commission proposal is sufficiently broad that it could be construed to include asset managers.
−Removed: The Directive prima facie limits the scope of the requirements for credit servicers and credit purchasers to the servicing or purchasing of credit agreements originally issued by a credit institution established in the EU or its subsidiaries established in the EU.
+Added: The Directive limits the scope of the requirements for credit servicers and credit purchasers to the servicing or purchasing of credit agreements originally issued by a credit institution established in the EU or its subsidiaries established in the EU.
This is subject, however, to individual Member State discretion.
7 unchanged sentences
The National Security Law also applies to non-permanent residents.
−Removed: Although the extra-territorial reach of the National Security Law remains unclear, there is a risk that the application of the National Security Law to conduct outside Hong Kong by non-permanent residents of Hong Kong could limit the activities of or negatively affect the Company, our investment funds and/or portfolio companies.
+Added: Although the extra-territorial reach of the National Security Law remains unclear, there is a risk that the application of the National Security Law to conduct outside Hong Kong by non-permanent residents of Hong Kong could limit the activities of or negatively affect us, our investment funds and/or portfolio companies.
The National Security Law has been condemned by the United States, the United Kingdom and several EU countries.
The United States and other countries may take action against China, its leaders and leaders of Hong Kong, which may include the imposition of sanctions.
−Removed: Escalation of tensions resulting from the National Security Law, including conflict between China and other countries, protests and other government measures, as well as other economic, social or political unrest in the future, could adversely impact the security and stability of the region and may have a material adverse effect on countries in which the Company, our investment funds and portfolio companies or any of their respective personnel or assets are located.
−Removed: In addition, any downturn in Hong Kong’s economy could adversely affect the financial performance of the Company and our investments, or could have a significant impact on the industries in which the Company participates, and may adversely affect the operations of the Company, its investment funds and portfolio companies, including the retention of investment and other key professionals located in Hong Kong.
+Added: Escalation of tensions resulting from the National Security Law, including conflict between China and other countries, protests and other government measures, as well as other economic, social or political unrest in the future, could adversely impact the security and stability of the region and may have a material adverse effect on countries in which we, our investment funds and portfolio companies or any of their respective personnel or assets are located.
+Added: In addition, any downturn in Hong Kong’s economy could adversely affect our financial statements and our investments, or could have a significant impact on the industries in which we participate, and may adversely affect our operations, our investment funds and portfolio companies, including the retention of investment and other key professionals located in Hong Kong.
Chinese Regulations.
In August 2014, the China Securities Regulatory Commission (the “CSRC”), the Chinese securities regulator, promulgated the Interim Regulations on the Supervision and Administration of Private Investment Funds (the “CSRC Regulations”).
−Removed: The CSRC Regulations adopt a very broad definition of private investment funds, including private equity funds.
+Added: The CSRC Regulations adopt a broad definition of private investment funds, including private equity funds.
In accordance with the CSRC Regulations and other relevant PRC laws, regulations and authorizations, the CSRC has become the principal regulator of private equity funds in China.
In December 2020, the CSRC further promulgated Several Provisions on Strengthening the Regulation of Private Investment Funds, pursuant to which the CSRC strengthened its regulations on private investment funds and private investment fund managers.
−Removed: CSRC has designated that the Asset Management Association of China (the “AMAC”), an industry body, with responsibility to introduce and promote regulations towards a degree of self-regulation across private equity funds in China.
+Added: CSRC has designated the Asset Management Association of China (the “AMAC”), an industry body, with responsibility to introduce and promote regulations toward a degree of self-regulation across private equity funds in China.
In recent years, regulations, directives and guidelines from the AMAC have continued to regulate private investment funds incorporated in China.
−Removed: For example, during the course of 2016, the AMAC issued “ Guidelines for Internal Control of Privately-raised Investment Fund Managers” (February, 2016), “ Administrative Measures for Information Disclosure of Privately-raised Investment Fund” (February, 2016), “ Announcement on Further Regulating Relevant Matters Concerning the Registration of the Managers of the Privately-Raised Funds” (February, 2016), “ Measures for the Administration of Private Placement of Private Investment Funds” (April, 2016), “ Private Equity Fund Contract Guidelines No.
−Removed: 3” ( April, 2016), “Administrative Measures for Private Investment Fund Services” (March, 2017), “Implementing Guidelines on the Administration of Investor Suitability for Fund Raising Institutions” (July, 2017), “ Guidelines on the Valuation of the Private Equity Investments of Privately-raised Investment Funds (for Trial Implementation) ” (July, 2018), “ Guidelines on the Name of Privately-raised Investment Funds ” (November, 2018), “ Notice on Privately-raised Fund Manager Registration ” (December, 2018), “ Notice on Privately-raised Investment Fund Filing ” (December, 2019), “ Notice on Facilitating the Application of Privately-raised Fund Manager Registration ” (February, 2020), “ Notice on Strengthening the Self-Regulatory Management of Privately-raised Fund Information Submission and Optimizing Industry Services ” (February, 2021), in addition to the regulations and directives from the CSRC and the AMAC.
+Added: For example, the AMAC has issued “ Guidelines for Internal Control of Privately-raised Investment Fund Managers ” (February 2016), “ Administrative Measures for Information Disclosure of Privately-raised Investment Fund ” (February 2016), “ Announcement on Further Regulating Relevant Matters Concerning the Registration of the Managers of the Privately-Raised Funds ” (February 2016), “ Measures for the Administration of Private Placement of Private Investment Funds ” (April 2016), “ Private Equity Fund Contract Guidelines No.
+Added: 3 ” ( April 2016), “ Administrative Measures for Private Investment Fund Services ” (March 2017), “ Implementing Guidelines on the Administration of Investor Suitability for Fund Raising Institutions ” (July 2017), “ Guidelines on the Valuation of the Private Equity Investments of Privately-raised Investment Funds (for Trial Implementation) ” (July 2018), “ Guidelines on the Name of Privately-raised Investment Funds ” (November 2018), “ Notice on Privately-raised Fund Manager Registration ” (December 2018), “ Notice on Privately-raised Investment Fund Filing ” (December 2019), “ Notice on Facilitating the Application of Privately-raised Fund Manager Registration ” (February 2020), and “ Notice on Strengthening the Self-Regulatory Management of Privately-raised Fund Information Submission and Optimizing Industry Services ” (February 2021), in addition to the regulations and directives from the CSRC and the AMAC.
If a private equity fund wishes to accept capital contributions from a PRC governmental body or authority, then that fund will also need to subject itself (including specific conditions as regards the general partner and/or the private investment fund manager) to the supervision of the National Development and Reform Commission (the “NDRC”).
4 unchanged sentences
Data Privacy.
−Removed: Many foreign countries and governmental bodies, including the European Union and other relevant jurisdictions where Carlyle and our portfolio companies conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdiction that are more restrictive than, and could in some cases conflict with, those in the U.S.
−Removed: See “—Laws and regulations relating to privacy, data protection, data transfers, data localization, and data security worldwide may limit the use and adoption of our services and adversely affect our business” for more information.
+Added: Many foreign countries and governmental bodies, including the European Union and other relevant jurisdictions where Carlyle and our portfolio companies conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdiction that are more restrictive than, and could in some cases conflict with, those in the United States.
+Added: See “Risks Related to Regulation and Litigation—Laws and regulations relating to privacy, data protection, data transfers, data localization, and data security worldwide may limit the use and adoption of our services and adversely affect our business” for more information.
Other Similar Measures.
−Removed: Our investment businesses are subject to the risk that similar measures might be introduced in other countries in which our investment funds currently have investments or plan to invest in the future, or that other legislative or regulatory measures that negatively affect their respective portfolio investments might be promulgated in any of the countries in which they invest.
+Added: Our investment businesses are subject to risk that similar measures might be introduced in other countries in which our investment funds currently have investments or plan to invest in the future, or that other legislative or regulatory measures that negatively affect their respective portfolio investments might be promulgated in any of the countries in which they invest.
The reporting related to such initiatives may divert the attention of our personnel and the management teams of our portfolio companies.
Moreover, sensitive business information relating to us or our portfolio companies could be publicly released.
−Removed: See “—Risks Related to Our Business Operations — Our investment funds make investments in companies that are based outside of the United States, which may expose us to additional risks not typically associated with investing in companies that are based in the United States” and Item 1.
−Removed: “Busin e ss—Regulatory and Compliance Matters” for more information.
−Removed: Changing regulations regarding derivatives and commodity interest transactions could adversely impact various aspects of our business .
−Removed: The regulation of derivatives and commodity interest transactions in the United States and other countries is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action.
−Removed: We and our affiliates enter into derivatives transactions for various purposes, including to manage the financial risks related to our business.
−Removed: Accordingly, the impact of this evolving regulatory regime on our business is difficult to predict, but it could be substantial and adverse.
−Removed: Managers of certain pooled investment vehicles with exposure to certain types of derivatives may be required to register with the CFTC as commodity pool operators (“CPOs”) and/or commodity trading advisors (“CTAs”) and become members of the National Futures Association (the “NFA”).
−Removed: As such, certain of our or our subsidiaries’ risk management or other commodities interest-related activities may be subject to CFTC oversight.
−Removed: Consequently, certain CFTC rules expose global investment firms, such as us, to increased registration and reporting requirements in connection with transactions in futures, swaps and other derivatives regulated by the CFTC.
−Removed: These regulations have required us to reassess certain business practices related to our pooled vehicles, consider registration of certain entities with the CFTC or file for additional exemptions from such registration requirements.
−Removed: In addition, as a result of their derivatives-related activities, certain of our entities also may be subject to a wide range of other regulatory requirements, such as:
−Removed: • potential compliance with certain commodities interest position limits or position accountability rules;
−Removed: • administrative requirements, including recordkeeping, confirmation of transactions and reconciliation of trade data;
−Removed: • mandatory central clearing and collateral requirements.
−Removed: Our business may incur increased ongoing costs associated with monitoring compliance with the CFTC registration and exemption obligations across platforms and complying with the various reporting and record-keeping requirements.
−Removed: Newly instituted and amended regulations could significantly increase the cost of entering into derivative contracts (including through requirements to post collateral which could adversely affect our available liquidity), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks that we encounter, reduce our ability to restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties.
−Removed: If we reduce our use of derivatives as a result of such regulations (and any new regulations), our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to satisfy our debt obligations or plan for and fund capital expenditures.
−Removed: The replacement of LIBOR with an alternative reference rate may adversely affect our credit arrangements and our collateralized loan obligation transactions.
−Removed: London Inter-Bank Offered Rate (“LIBOR”) and certain other “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform.
−Removed: These reforms have resulted in plans to phase out and eventually replace LIBOR which may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted.
−Removed: On November 30, 2020, the FCA, which regulates LIBOR, announced that subject to confirmation following its consultation with the administrator of LIBOR, it would cease publication of the one-week and two-month USD LIBOR immediately after December 31, 2021, and cease publication of the remaining tenors immediately after June 30, 2023.
−Removed: Additionally, the Federal Reserve Board has advised banks to stop entering into new USD LIBOR-based contracts.
−Removed: As a result of the phasing out of this benchmark, interest rates on our floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, as well as the revenue and expenses associated with those financial instruments, may be adversely affected.
−Removed: Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has recommended replacing USD LIBOR with a new reference rate derived from short-term repurchase agreements backed by Treasury securities, the Secured Overnight Financing Rate (“SOFR”).
−Removed: However, certain market constituencies have criticized SOFR’s suitability as a LIBOR replacement, and the extent of SOFR-based instruments issued or trading in the market remains a fraction of LIBOR-based instruments.
−Removed: As such, there remains uncertainty regarding the future utilization of SOFR, LIBOR and other “IBORS,” and the nature of any replacement rates.
−Removed: It is unclear what methods of calculating a replacement benchmark will be established or adopted generally, and whether different industry bodies, such as the loan market and the derivatives market will adopt the same methodologies.
−Removed: To address the transition away from LIBOR, we have amended our credit agreements and related loan documentation to provide for an agreed upon methodology to calculate new benchmark rate spreads, but there are as yet no comparable forward-looking benchmarks for the various LIBOR tenors.
−Removed: The calculation of interest rates under the replacement benchmarks could negatively impact our business and financial results.
−Removed: We are assessing the impact of the transition;
−Removed: however, we cannot reasonably estimate the impact of the transition at this time.
−Removed: We are carefully evaluating our CLOs to identify any discrepancy between the interest rate an issuer pays on its liabilities compared to the interest rate on the underlying assets, or the amounts payable under a derivative used to hedge its currency or interest rate exposure.
−Removed: For our more recent generation of CLOs, we have incorporated provisions to address the transition from LIBOR, however certain older CLOs have not yet come up for amendment or refinancing, and as such may not currently contain clear LIBOR transition procedures.
−Removed: In January 2022, we priced our first CLO to SOFR, which the industry has
−Removed: generally adopted to replace LIBOR.
+Added: See “Risks Related to Our Business Operations—Risks Related to the Assets We Manage—Our funds make investments in companies that are based outside of the United States, which may expose us to additional risks not typically associated with investing in companies that are based in the United States” and Item 1 “Busin e ss—Regulatory and Compliance Matters” for more information.
+Added: Increasing scrutiny from stakeholders on ESG matters, including our ESG reporting, exposes us to reputational and other risks.
+Added: We, our funds and their portfolio companies face increasing public scrutiny related to ESG activities as well as ESG policies, processes and/or performance, including from fund investors, stockholders, regulators and other stakeholders.
+Added: We and they risk damage to our brand and reputation, if we or they fail or are perceived to have failed to act responsibly in a number of areas, such as diversity, equity and inclusion, environmental stewardship, support for local communities, corporate governance and transparency and considering ESG factors in our investment processes.
+Added: In addition, different stakeholder groups have divergent views on ESG matters, including in the countries in which we operate and invest, as well as states and localities where we serve public sector clients.
+Added: This divergence increases the risk that any action or lack thereof with respect to ESG matters will be perceived negatively by at least some stakeholders and adversely impact our reputation and business.
+Added: If we do not successfully manage ESG-related expectations across the varied interests of our stakeholders, it could erode stakeholder trust, impact our reputation, and constrain our investment opportunities.
+Added: Adverse incidents with respect to ESG activities or ESG policies, processes and/or performance, including any statements regarding the investment strategies of our funds or our funds’ ESG efforts or initiatives that are or are perceived to be inaccurate or misleading, could impact the value of our brand, or the brands of our funds or their portfolio companies, the cost of our or their operations and relationships with investors, all of which could adversely affect our business and results of operations.
+Added: In particular, there has been significant negative publicity and investor and regulatory focus on the phenomenon of “greenwashing” (i.e., making inaccurate or misleading statements regarding the sustainability or ESG-related characteristics of a product, business, or business practice).
+Added: We could suffer significant reputational damage and regulatory scrutiny if we are subject to “greenwashing” accusations, including with respect to statements regarding the investment strategies of our funds or the ESG efforts and initiatives of us, our funds and our portfolio companies.
+Added: Such accusations could also result in litigation and adversely impact our ability to raise capital and attract new investors.
+Added: Although we consider application of our ESG strategy to be an opportunity to enhance or protect the performance of our investments over the long-term, we cannot guarantee that our ESG strategy, which depends in part on qualitative judgments, will positively impact the financial or ESG performance of any individual investment or our funds as a whole.
+Added: Similarly, to the extent we or a third-party ESG advisor engages with portfolio companies on ESG-related practices and potential enhancements thereto, there is no guarantee that such engagements will improve the long-term value of the investment.
+Added: Successful engagement efforts on the part of us or a third-party ESG advisor will depend on our or any such third-party advisor’s ability to identify and analyze material ESG and other factors and their value, and there can be no assurance that the strategy or techniques employed will be successful.
+Added: In addition, our ESG strategy, including the ESG strategy and associated procedures and practices, is expected to change over time.
+Added: We and many of our portfolio companies undertake voluntary reporting on various ESG matters, including, for example, greenhouse gas emissions, supply chain practices, and human capital management.
+Added: The standards for tracking and reporting on ESG matters are relatively new, have not been harmonized, and continue to evolve and we may fail to successfully implement or comply with these rapidly developing ESG standards and requirements.
+Added: Moreover, in conducting ESG reporting, we may seek to align with particular disclosure frameworks and/or reporting standards, which are evolving.
+Added: Our selection of disclosure frameworks and reporting standards, may change from time to time and may result in a lack of consistent or meaningful comparative data from period to period, as well as significant revisions to ESG goals, initiatives, commitments, or objectives or reported progress in achieving the same.
+Added: Due to the lack of a single, comprehensive ESG strategy that is utilized across all asset managers, we and our portfolio companies may utilize a combination of frameworks, or develop proprietary frameworks where necessary and relevant.
+Added: In addition, we and our portfolio companies’ selection of reporting frameworks or standards, and other methodological choices, such as the use of certain performance metrics, levels of quantification, value chain reporting, or materiality standards, may vary over time and may not always align with evolving investor and activist expectations or market practices.
+Added: We and our portfolio companies may suffer reputational damage if our or their ESG disclosure is viewed as falling short of best practices, or if such reporting indicates ESG performance that does not meet investor, activist, employee, customer, or other stakeholder expectations.
+Added: With respect to both voluntary and mandated ESG disclosures, we and our portfolio companies may not successfully implement measurement processes and disclosure controls and procedures that meet evolving investor, activist, or regulatory expectations.
+Added: In addition, enhancements to such processes and controls may be costly and give rise to significant administrative burdens.
+Added: For example, collecting, measuring, and reporting ESG information and metrics can be costly, difficult and time consuming, is subject to evolving reporting standards, and can present numerous operational, reputational, financial, legal and other risks.
+Added: If we or our portfolio companies do not successfully implement controls related to reporting ESG information, this could result in legal liability and reputational damage, which could impact our ability to attract and retain investors and employees.
+Added: It is unclear what impact the United Kingdom’s exit from the European Union will have on the Company or the fund portfolio companies.
+Added: The UK held a referendum in June 2016 on whether to remain a member state of the EU, in which a majority of voters voted to leave the EU.
+Added: The UK officially left the EU on January 31, 2020, and a transition period of 11 months commenced on this date to allow for the negotiation of a new trade agreement.
+Added: This transition period ended on December 31, 2020.
+Added: Various EU laws have been adopted into domestic UK legislation and certain transitional regimes and deficiency-correction powers exist to ease the transition.
+Added: The UK and the EU announced, on December 24, 2020, that they had reached agreement on a new Trade and Cooperation Agreement (the “TCA”), which addresses the future relationship between the parties.
+Added: The TCA was approved by the UK Parliament on December 30, 2020.
+Added: Due to the TCA only being agreed shortly before the end of the transition period, it applied on a provisional basis in the EU until it was formally ratified by the European Parliament and has applied permanently from May 1, 2021.
+Added: The TCA covers, for example, measures to preserve tariff-free trade in goods and the ability of UK nationals to travel to the EU on business but defers other issues.
+Added: While the TCA includes a commitment by the UK and the EU to keep their markets open for persons wishing to provide financial services through a permanent establishment, it does not substantively address future cooperation in the financial services sector or reciprocal market access into the EU by UK-based firms under equivalence arrangements or otherwise.
+Added: While the TCA provides clarity in some areas, the impact of Brexit on our business operations in the UK and the EU, and on the private investment funds industry and global financial markets more broadly, remains uncertain.
+Added: This is driven in part by the ongoing uncertainty relating to equivalence and the extent to which the EU will grant reciprocal access to UK firms in the financial services sector.
+Added: As a new agreement, the implications and operation of the TCA may also be subject to change and/or develop at short notice.
+Added: As of January 1, 2021, our UK FCA-authorized affiliates, CECP and CELF, ceased to be entitled to exercise single market passport rights to provide investment services in or into the EEA on a cross-border services basis.
+Added: In addition, Abingworth is no longer able to exercise a single market passport to market its funds in the EEA.
+Added: Certain EEA investor-facing activities previously carried on by CECP and CELF have been reorganized so that they are performed now by different, EEA established affiliates under alternative licensing arrangements.
+Added: We also may continue to make changes to the arrangements in the future.
+Added: These arrangements may subject us to additional regulatory obligations and may impede our ability to raise capital from EEA investors.
+Added: In this respect and otherwise, uncertainty about the way in which these and other complex issues will be resolved could adversely affect us, our investment funds and portfolio companies (especially if our investment funds include, or expose them to, businesses that depend on access to the single market, the customs union, or whose value is affected adversely by the UK’s future relationship with the EU).
+Added: The size and importance of the UK’s economy, coupled with uncertainty or unpredictability about the precise nature of its future legal, political and economic relationship with the EU following the implementation of the TCA (and any subsequent discussions between the UK and EU in respect of matters not within its scope) may continue to cause instability, significant currency fluctuations and/or other adverse effects on international markets, international trade agreements and/or other existing cross-border cooperation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise).
+Added: In addition, Brexit could have a destabilizing effect if any other member states were to consider withdrawing from the EU.
+Added: The decision for any other member state to withdraw from the EU could exacerbate such uncertainty and instability and may present similar and/or additional potential risks and consequences for us, our investment funds and fund portfolio companies.
+Added: These complex issues and other by-products of Brexit, such as the tightening of credit in the UK commercial real estate market, may also increase the costs of having operations, conducting business and making investments in the UK and Europe.
+Added: As a result, the performance of our funds that are focused on investing in the UK and to a lesser extent across Europe, may be disproportionately affected compared to those funds that invest more broadly across global geographies or are focused on different regions.
+Added: The uncertainty surrounding the precise nature of the UK’s future legal relationship with the EU may continue to be a source of significant exchange rate fluctuations and/or other adverse effects on international markets.
+Added: Unhedged currency fluctuations have the ability to adversely affect our funds and their underlying portfolio companies.
+Added: Moreover, the development of the UK’s future legislative approach remains uncertain.
+Added: The UK may elect in the future to repeal, amend or replace EU laws, which could exacerbate the uncertainty and result in divergent UK national laws and
+Added: Changes to the regulatory regimes in the UK or the EU and its member states could materially affect our business prospects and opportunities and increase our costs.
+Added: In addition, Brexit could potentially disrupt the tax jurisdictions in which we operate and affect the tax benefits or liabilities in these or other jurisdictions in a manner that is adverse to us and/or our funds.
+Added: Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.
+Added: The replacement of LIBOR with an alternative reference rate, such as SOFR, may adversely affect our credit arrangements and our collateralized loan obligation transactions.
+Added: LIBOR and certain other “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform.
+Added: These reforms have resulted in plans to phase out and eventually replace LIBOR, which may cause such benchmarks to perform differently than in the past or have other consequences that cannot be predicted.
+Added: Since January 1, 2022, U.S.
+Added: banks have not been allowed to issue any new debt tied to LIBOR, which will cease to be published at the end of June 2023.
+Added: Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.
+Added: financial institutions, formally recommended SOFR as its preferred alternative rate for LIBOR.
+Added: While we have seen an increase in market acceptance of SOFR, there is no guarantee that this trend will continue.
+Added: To address the transition away from LIBOR, we have amended our credit agreements and related loan documentation to provide for an agreed upon methodology, such as SOFR, to calculate new benchmark rate spreads.
+Added: In April 2022, for example, we amended our revolving facility to reference SOFR, among other changes in terms.
+Added: We have evaluated and continue to evaluate our CLOs to identify any discrepancy between the interest rate an issuer pays on its liabilities compared to the interest rate on the underlying assets, or the amounts payable under a derivative used to hedge its currency or interest rate exposure.
+Added: For our more recent generation of CLOs, we have incorporated provisions to address the transition from LIBOR;
+Added: however, certain older CLOs have not yet come up for amendment or refinancing and as such may not currently contain clear LIBOR transition procedures.
+Added: In January 2022, for example, we priced our first CLO to SOFR.
As the market fully transitions from LIBOR, we expect that there will be short-term rate mismatches, which could adversely impact the returns on our CLOs.
If the transition from LIBOR results in an overall increase to borrowing costs, higher interest expense could negatively affect the financial results and valuations of our funds’ portfolio companies.
−Removed: In addition, uncertainty with respect to reference rates may delay the implementation of related systems and processes necessary to process financial instruments.
−Removed: There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases or volatility in risk-free benchmark rates, or borrowing costs to borrowers, any of which could have a material adverse effect on our business, result of operations, financial condition, and share price.
+Added: There is no guarantee that a transition from LIBOR to an alternative, such as SOFR, will not result in financial market disruptions, significant increases or volatility in risk-free benchmark rates, or borrowing costs to borrowers, any of which could have a material adverse effect on our business, result of operations, financial condition, and share price.
We are subject to substantial litigation risks and may face significant liabilities and damage to our professional reputation as a result of litigation allegations and negative publicity.
7 unchanged sentences
Even in the absence of misconduct, we may be exposed to litigation or other adverse consequences where investments perform poorly and investors in or alongside our funds experience losses.
−Removed: The general partners and investment advisers to our investment funds, including their directors, officers, other employees and affiliates, are generally indemnified with respect to their conduct in connection with the management of the business and affairs of our investment funds.
+Added: The general partners and investment advisers to our investment funds, including their directors, officers, other employees and affiliates, are generally indemnified by our funds with respect to their conduct in connection with the management of the business and affairs of our investment funds.
+Added: If a particular fund has an indemnification obligation to us, but such fund’s assets have been depleted or distributed to the relevant fund investors, such fund may have insufficient assets to cover its indemnification obligation and the Company could suffer financial losses.
Defending against litigation could be costly.
Such litigation costs may not be recoverable from insurance or other indemnification.
−Removed: Carlyle has recovered significant amounts of insurance proceeds in recent years.
+Added: Carlyle has previously recovered significant amounts of insurance proceeds.
As a general matter, we expect that the cost of insurance will increase significantly, and we do not believe we will recover the same amount of insurance proceeds as we have in prior years.
5 unchanged sentences
Recently, there has been an elevated level of focus put on our industry and companies in which our funds are invested, including increased focus on externalities of business activities such as ESG considerations.
−Removed: See “—Risks Related to Our Company—Extensive regulation in the United States and abroad affects our activities, increases the cost of doing business and creates the potential for significant liabilities and penalties.” We depend to a large extent on our business relationships and our reputation for integrity and high-caliber professional services to attract and retain investors and to pursue investment opportunities for our funds.
+Added: See “Risks Related to Regulation and Litigation—Extensive regulation in the United States and abroad affects our activities, increases the cost of doing business and creates the potential for significant liabilities and penalties.” We depend to a large extent on our business relationships and our reputation for integrity and high-caliber professional services to attract and retain investors and to pursue investment opportunities for our funds.
As a result, allegations of improper conduct by private litigants (including investors in or alongside our funds), regulators or employees, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, our investment activities, the private equity industry in general or our workplace, whether or not valid, may harm our reputation, which may be more damaging to our business than to other types of businesses.
1 unchanged sentence
The cost of settling any such claims could negatively impact our business, results of operations and financial condition.
+Added: Our affiliated subsidiaries serve as the general partners of many of our managed funds and could have liability for certain fund obligations.
+Added: Our affiliated subsidiaries serve as a general partner of many of our funds.
+Added: As such, under applicable law and the fund partnership agreements, our subsidiaries could have liability for obligations of our funds if such funds have insufficient assets to pay such obligations themselves, including contractual obligations, obligations to repay fund indebtedness, uninsured contingent obligations for litigation damages awards or taxes determined to be owed by the funds.
+Added: In general, the funds indemnify us for such obligations;
+Added: but if the relevant funds’ assets have been depleted or distributed to fund investors, such fund may be unable to pay such indemnification obligation to us, and we could suffer significant loss and expense.
Employee misconduct or fraud could harm us and subject us to significant legal liability and reputational harm, which could impair our ability to attract and retain investors in our funds.
2 unchanged sentences
Misconduct or fraud by employees, advisors or other third-party service providers could cause significant losses.
−Removed: Employee misconduct or fraud could include, among other things, binding the Company to transactions that exceed authorized limits or present unacceptable risks and other unauthorized activities or concealing unsuccessful investments (which, in either case, may result in unknown and unmanaged risks or losses), or otherwise charging (or seeking to charge) inappropriate expenses or engaging in inappropriate or unlawful behavior or actions directed towards other employees.
+Added: Employee misconduct or fraud could include, among other things, binding the Company to transactions that exceed authorized limits or present unacceptable risks and other unauthorized activities or concealing unsuccessful investments (which, in either case, may result in unknown and unmanaged risks or losses), or otherwise charging (or seeking to charge) inappropriate expenses or engaging in inappropriate or unlawful behavior or actions directed toward other employees.
It is not always possible to deter misconduct or fraud by employees or service providers, and the precautions we take to detect and prevent this activity may not be effective in all cases.
−Removed: In the current remote work environment we may have less of an ability to supervise our employees, which could expose us to an enhanced risk of misconduct or fraud.
+Added: In the current hybrid work environment we may have less of an ability to supervise our employees, which could expose us to an enhanced risk of misconduct or fraud.
Our ability to attract and retain investors and to pursue investment opportunities for our investment funds depends heavily upon the reputation of our professionals, especially our senior Carlyle professionals.
2 unchanged sentences
For example, we could lose our ability to raise new investment funds if any of our “covered persons” is the subject of a criminal, regulatory or court order or other disqualifying event.
−Removed: See “—Extensive regulation in the United States and abroad affects our activities, increases the cost of doing business and creates the potential for significant liabilities and penalties.” In addition, in certain jurisdictions, we may be liable for certain social media statements made by our employees.
+Added: See “Risks Related to Regulation and Litigation—Extensive regulation in the United States and abroad affects our activities, increases the cost of doing business and creates the potential for significant liabilities and penalties.” In addition, in certain jurisdictions, we may be liable for certain social media statements made by our employees.
For example, any statements an employee makes online in a personal capacity (whether or not such employee identifies online as an employee of the Company) could still be attributed to Carlyle under certain regulations.
15 unchanged sentences
As a result of the expansion of our platform into various lines of business in the asset management industry, our acquisition of new businesses, and the growth of our managed account business, we are subject to a number of actual and potential conflicts of interest and subject to greater regulatory oversight than that to which we would otherwise be subject if we had just one line of business.
+Added: For example, certain regulatory requirements mandate us to restrict access by certain personnel in our funds to information about certain transactions or investments being considered or made by those funds.
In addition, as we continue to expand our platform, the allocation of investment opportunities among our investment funds is expected to become more complex.
−Removed: In addressing these conflicts and regulatory requirements across our various businesses, we have and may continue to implement certain policies and procedures (for example, information barriers).
+Added: In addressing these conflicts and regulatory requirements across our various businesses, we have and may continue to implement certain policies and procedures, such as information barriers.
As a practical matter, the establishment and maintenance of such information barriers means that collaboration between our investment professionals across various platforms or with respect to certain investments may be limited, reducing potential synergies that we cultivate across these businesses through our “One Carlyle” approach.
For example, although we maintain ultimate control over the Global Investment Solutions segment’s constituent firm, AlpInvest, we have erected an information barrier between the management teams at AlpInvest and the rest of Carlyle.
−Removed: See “—Risks Related to Our Business Operations—Our Global Investment Solutions business is subject to additional risks.” In addition, we may come into possession of material, non-public information with respect to issuers in which we may be considering making an investment.
−Removed: As a consequence, we may be precluded from providing such information or other ideas to our other businesses that could benefit from such information.
+Added: See “Risks Related
+Added: to Our Business Operations—Industry Risks Related to the Assets We Manage—Our Global Investment Solutions business is subject to additional risks.” In addition, we may come into possession of material, non-public information with respect to issuers in which we may be considering making an investment.
+Added: Consequently, we may be precluded from providing such information or other ideas to our other businesses that could benefit from such information.
+Added: Our failure to deal appropriately with conflicts of interest in our investment business could damage our reputation and adversely affect our businesses.
+Added: As we have expanded and as we continue to expand the number and scope of our businesses, we increasingly confront potential conflicts of interest relating to our funds’ investment activities.
+Added: For example, a decision to acquire material, non-public information about a company while pursuing an investment opportunity for a particular fund may give rise to a potential conflict of interest that results in our having to restrict the ability of other funds to take any action.
+Added: Certain of our funds, managed accounts or investment vehicles may have overlapping investment objectives, including co-investment funds and funds that have different fee structures, and potential conflicts may arise with respect to our decisions regarding how to allocate investment opportunities among those funds, managed accounts or investors.
+Added: For example, different funds may invest in a single company where the fund that made the initial investment no longer has capital available to invest or a follow-on opportunity arises.
+Added: We may also cause different funds that we manage to purchase different classes of debt or securities in the same portfolio company.
+Added: For example, one of our funds could acquire a debt security or bank loan issued by the same company in which one of our buyout funds owns common equity securities or several of our funds could be invested in different tranches of a company’s debt.
+Added: A direct conflict of interest could arise between and among the debt holders and the equity holders if such a portfolio company was to develop insolvency concerns, and that conflict would have to be carefully managed by us.
+Added: It is also possible that in the event the company goes through a bankruptcy proceeding, the interests of the fund holding the debt securities or loans may be subordinated, recharacterized or otherwise adversely affected by virtue of the involvement and actions of the fund holding the equity in the portfolio company.
+Added: In such a case, the debt security or loan could be converted into equity and the prospects of repayment greatly diminished.
+Added: Conflicts of interest may also exist in the valuation of our investments and regarding decisions about the allocation of specific investment opportunities among us and our funds and the allocation of fees and costs among us, our investment funds and their portfolio companies and conflicts could also arise in respect of the ultimate disposition of such investments.
+Added: Due to changes in the tax treatment of carried interest under the TCJA and/or future legislation, conflicts of interest may arise with investors in certain of our funds in connection with the general partner’s decisions with respect to the sequence and timing of disposals of investments in such funds.
+Added: To the extent we fail to appropriately deal with any such conflicts, it could negatively impact our reputation and ability to raise additional funds and the willingness of counterparties to do business with us or result in regulatory liability or potential litigation against us.
Risks Related to Our Business Operations
+Added: Risks Related to the Assets We Manage
+Added: The alternative asset management business is intensely competitive.
+Added: The alternative asset management business is intensely competitive, with competition based on a variety of factors, including investment performance, business relationships, quality of service provided to investors, investor liquidity and willingness to invest, fund terms (including fees), brand recognition, types of products offered, consideration of ESG issues and business reputation.
+Added: Our investment business, as well as our investment funds, competes with a number of private equity funds, specialized investment funds, hedge funds, corporate buyers, traditional asset managers, real estate development companies, commercial banks, investment banks and other financial institutions (as well as sovereign wealth funds and other institutional investors).
+Added: In addition, developments in financial technology (or fintech), such as a distributed ledger technology (or blockchain), have the potential to disrupt the financial industry and change the way financial institutions, as well as asset managers, do business.
+Added: Several factors, among others, serve to increase our competitive risks:
+Added: • a number of our competitors in some of our businesses have greater financial, fundraising, technical, marketing and other resources and more personnel than we do;
+Added: • some of our funds may not perform as well as competitors’ funds or other available investment products;
+Added: • fund investors may reduce their investments in our funds or decrease their allocations in new funds based on a variety of factors, such as the occurrence of an economic downturn, their available capital, regulatory requirements, a desire to consolidate their relationships with investment firms or other considerations;
+Added: • several of our competitors have significant amounts of capital, and many of them have similar investment objectives to ours, which may create additional competition for investment opportunities and may reduce the size and duration of pricing inefficiencies that otherwise could be exploited;
+Added: • some of these competitors (including strategic competitors) may also have a lower cost of capital and access to funding sources that are not available to us, which may create competitive disadvantages for our funds with respect to investment opportunities;
+Added: • some of our competitors may have higher risk tolerances, different risk assessments or lower return thresholds than us, which could allow them to consider a wider variety of investments and to bid more aggressively or more quickly than us for investments that we want to make;
+Added: • some of our competitors may be subject to less regulation and accordingly may have more flexibility to undertake and execute certain businesses or investments than we do and/or bear less compliance expense than us;
+Added: • some of our competitors may have more flexibility than us in raising certain types of investment funds under the investment management contracts they have negotiated with their investors;
+Added: • some of our competitors may be more successful than us in development of new products to address investor demand for new or different investment strategies and/or regulatory changes, including with respect to products with mandates that incorporate ESG considerations, or products that are targeted toward retail or insurance capital;
+Added: • some of our competitors may have better expertise or be regarded by investors as having better expertise in a specific asset class or geographic region than we do;
+Added: • our competitors that are corporate buyers may be able to achieve synergistic cost savings in respect of an investment, which may provide them with a competitive advantage in bidding for an investment;
+Added: • our competitors have instituted or may institute low cost, high speed financial applications and services based on artificial intelligence and new competitors may enter the asset management space using new investment platforms based on artificial intelligence;
+Added: • special purpose acquisition companies (“SPACs”) may continue to compete with our funds for investment opportunities and drive up asset prices;
+Added: • there are relatively few barriers to entry impeding the formation of new investment firms, and the successful efforts of new entrants into our various businesses, including former “star” portfolio managers at large diversified financial institutions as well as such institutions themselves, is expected to continue to result in increased competition;
+Added: • some investors may prefer to pursue investments directly instead of investing through one of our funds;
+Added: • some investors may prefer to invest with an asset manager that is not publicly traded or is smaller with only one or two investment products that it manages;
+Added: • other industry participants may, from time to time, seek to recruit our investment professionals and other employees away from us.
+Added: We may lose investment opportunities in the future if we do not match investment prices, structures, products or terms offered by our competitors.
+Added: Alternatively, we may experience decreased rates of return and increased risks of loss if we match investment prices, structures and terms offered by our competitors.
+Added: Moreover, if we are forced to compete with other asset managers on the basis of price, we may not be able to maintain our current fund fee and carried interest terms.
+Added: historically competed primarily on the performance of our funds, and not on the level of our fees or carried interest relative to those of our competitors.
+Added: However, there is a risk that fees and carried interest in the asset management industry will decline, without regard to the historical performance of a manager.
+Added: Fee or carried interest income reductions on existing or future funds, without corresponding decreases in our cost structure, would adversely affect our revenues and profitability.
+Added: The attractiveness of our investment funds relative to investments in other investment products could decrease depending on economic conditions.
+Added: In addition, to the extent that any changes in tax law make debt financing less attractive to certain categories of borrowers, this could adversely affect the investment opportunities for our credit-focused funds.
+Added: Such competitive pressure could adversely affect our ability to make successful investments and limit our ability to raise future investment funds, either of which would adversely impact our business, revenue, results of operations and cash flow.
+Added: See “Risks Related to Our Business Operations—Risks Related to the Assets We Manage—Our investors may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable to us than those of our existing funds, which could adversely affect our revenues.”
Poor performance of our investment funds would cause a decline in our revenue, income and cash flow, may obligate us to repay carried interest previously paid to us, and could adversely affect our ability to raise capital for future investment funds.
3 unchanged sentences
In our CLOs, defaults or downgrades of the CLOs’ underlying collateral obligations could cause failures of certain over collateralization tests and the potential for insufficient funds to pay expected management fees on any such CLO, which would result in either a temporary deferral or permanent loss of such management fees.
−Removed: See “—Our CLO business and investment into CLOs involves certain risks.”
+Added: See “Risks Related to Our Business Operations—Industry Risks Related to the Assets We Manage—Our CLO business and investment into CLOs involves certain risks.”
We also could experience losses on our investment of our own capital into our funds as a result of poor performance by our investment funds.
1 unchanged sentence
These repayment obligations may be related to amounts previously distributed to our senior Carlyle professionals prior to the completion of our initial public offering, with respect to which our stockholders did not receive any benefit.
−Removed: See “—We may need to pay “giveback” obligations if and when they are triggered under the governing agreements with our investors” and Note 10 to our consolidated financial statements included in Part II.
−Removed: to this Annual Report on Form 10-K.
+Added: See “Risks Related to Our Business Operations— Risks Related to the Assets We Manage—We may need to pay “giveback” obligations if and when they are triggered under the governing agreements with our investors” and Note 10 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
Poor performance of our investment funds may also make it more difficult for us to raise new capital.
−Removed: Investors in our funds might decline to invest in future investment funds we raise.
+Added: Investors in our funds may decline to invest in future investment funds we raise.
Investors and potential investors in our funds continually assess our investment funds’ performance, and our ability to raise capital for existing and future investment funds and avoid excessive redemption levels will depend on our investment funds’ continued satisfactory performance.
Accordingly, poor fund performance may deter future investment in our funds and thereby decrease the capital invested in our funds and ultimately, our management fee income.
+Added: The historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in our common stock.
+Added: We have presented in this Annual Report on Form 10-K information relating to the historical performance of our investment funds.
+Added: The historical and potential future returns of the investment funds that we advise, however, are not directly linked to returns in our common stock.
+Added: Therefore, any continued positive performance of the investment funds that we advise will not necessarily result in positive returns on an investment in our common stock.
+Added: However, poor performance of the investment funds that we advise would cause a decline in our revenue from such investment funds, and could therefore have a negative effect on our performance, our ability to raise future funds and in all likelihood the returns on an investment in our common stock.
+Added: Moreover, with respect to the historical returns of our investment funds:
+Added: • our historical returns derive largely from the performance of our existing funds, and we may create new funds in the future that reflect a different asset mix and different investment strategies, as well as a varied geographic and industry exposure as compared to our present funds, and any such new funds could have lower returns than our existing or previous funds;
+Added: • the performance of our carry funds reflects our valuation of the unrealized investments held in those funds using assumptions that we believe are reasonable under the circumstances, but the actual realized return on these investments will depend on, among other factors, future operating results and the value of assets and market conditions at the time of disposition all of which may differ from the assumptions on which the valuations in our historical returns are based, which may adversely affect the ultimate value realized from those unrealized investments;
+Added: • in recent years, there has been increased competition for private equity investment opportunities resulting from the increased amount of capital invested in alternative investment funds, high liquidity in debt markets and strong equity markets, and the increased competition for investments may reduce our returns in the future;
+Added: • the rates of returns of some of our funds in certain years have been positively influenced by a number of investments that experienced rapid and substantial increases in value following the dates on which those investments were made, which may not occur with respect to future investments;
+Added: • our investment funds’ returns in some years have benefited from investment opportunities and general market conditions, including lower interest rates and rates of inflation than present market conditions, that may have been significantly more favorable for generating positive performance than current market conditions or market conditions that we may experience in the future and may not repeat themselves;
+Added: • our current or future investment funds might not be able to avail themselves of comparable investment opportunities or market conditions, and the circumstances under which our funds may make future investments may differ significantly from those conditions prevailing in the past;
+Added: • newly-established funds may generate lower returns during the period that they take to deploy their capital;
+Added: • the introduction of fund-level leverage in more recent funds has increased the rates of returns in those funds compared to what they would have been without the use of such leverage.
+Added: Our recent performance has benefited from recent high multiples and asset prices.
+Added: In the current market environment, we expect that earning such returns on new investments will be much more difficult than in the past and the future internal rate of return for any current or future fund may vary considerably from the historical internal rate of return generated by any particular fund or for our funds as a whole.
+Added: Future returns will also be affected by the risks described elsewhere in this report, including risks of the industries and businesses in which a particular fund invests.
+Added: See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Analysis—Fund Performance Metrics” for additional information.
+Added: Risk management activities may adversely affect the return on our and our funds’ investments.
+Added: When managing our exposure to market risks, we may (on our own behalf or on behalf of our funds) from time to time use forward contracts, options, swaps, caps, collars and floors or pursue other strategies or use other forms of derivative instruments to limit our exposure to changes in the relative values of investments that may result from market developments, including changes in prevailing interest rates, currency exchange rates and commodity prices.
+Added: The scope of risk management activities undertaken by us varies based on the level and volatility of interest rates, prevailing foreign currency exchange rates, the types of investments that are made and other changing market conditions.
+Added: The use of hedging transactions and other derivative instruments to reduce the effects of a decline in the value of a position does not eliminate the possibility of fluctuations in the value of the position or prevent losses if the value of the position declines.
+Added: Such transactions may also limit the opportunity for gain if the value of a position increases.
+Added: Moreover, it may not be possible to limit the exposure to a market development that is so generally anticipated that a hedging or other derivative transaction cannot be entered into at an
+Added: acceptable price.
+Added: Currency fluctuations, in particular, can have a substantial effect on our cash flow and financial condition.
+Added: The success of any hedging or other derivative transaction generally will depend on our ability to correctly predict market changes, the degree of correlation between price movements of a derivative instrument and the position being hedged, the creditworthiness of the counterparty and other factors.
+Added: As a result, while we may enter into such a transaction in order to reduce our exposure to market risks, the transaction may result in poorer overall firm or investment performance than if it had not been executed.
+Added: Such transactions may also limit the opportunity for gain if the value of a hedged position increases.
+Added: While such hedging arrangements may reduce certain risks, such arrangements themselves may entail certain other risks.
+Added: These arrangements may require the posting of cash collateral at a time when a fund has insufficient cash or illiquid assets such that the posting of the cash is either impossible or requires the sale of assets at prices that do not reflect their underlying value.
+Added: Moreover, these hedging arrangements may generate significant transaction costs, including potential tax costs, which may reduce the returns generated by the firm or a fund.
+Added: See “Risks Related to Regulation and Litigation—Changing regulations regarding derivatives and commodity interest transactions could adversely impact various aspects of our business.”
+Added: Ongoing trade negotiations and potential for further regulatory reform may create regulatory uncertainty for our portfolio companies and our investment strategies and adversely affect the profitability of our portfolio companies.
+Added: Since March 2018, the United States has imposed, or threatened to impose, a series of various tariffs on a variety of goods imported into the United States, with an emphasis on those imported from China and the EU.
+Added: These new tariffs, or other changes in U.S.
+Added: trade policy, have resulted in, and may continue to trigger, retaliatory actions by affected countries, particularly China.
+Added: In October 2022, the United States Trade Representative (“USTR”) announced the public comment phase of its four-year, statutorily mandated review of the China Section 301 tariffs.
+Added: Following the announcement, the USTR solicited additional information from interested parties in regard to their investigation.
+Added: However, it is unclear if any tariffs will be removed, modified, or increased as a result of the investigation.
+Added: government has also implemented and expanded a number of economic sanctions programs and export controls that target Chinese entities and nationals on national security grounds, and has imposed restrictions on our ability to acquire and retain interests in the securities of certain Chinese entities.
+Added: These initiatives target, for example, China’s response to political demonstrations in Hong Kong, China’s conduct concerning the treatment of Uighurs and other ethnic minorities in its Xinjiang province, and certain Chinese entities designated by the U.S.
+Added: government as Communist Chinese military companies, among other things.
+Added: Geopolitical tensions globally remain elevated and further changes to foreign direct investment laws remain possible.
+Added: government is advancing plans to create an outbound investment screening regime to prevent U.S.
+Added: capital from contributing to the development of force-multiplying technologies in certain jurisdictions, such as China.
+Added: The concern among policymakers is that U.S.
+Added: investment, particularly in China, facilitates the transfer or buildup of technology and know-how that could strengthen another country’s civil and military capabilities to the detriment of the United States.
+Added: Another major concern is U.S.
+Added: supply chain security—the ability to ensure access to critical goods and services in the face of disruptions arising from conflict, economic coercion, or natural disasters.
+Added: An outbound investment screening could, depending upon scope, limit our ability to make certain investments without obtaining U.S.
+Added: government approval.
+Added: Furthermore, foreign direct investment laws in non-U.S.
+Added: jurisdictions can also require approvals, which can delay the investment or divestment of assets in a fund.
+Added: Any governmental action, including such actions noted above, has the potential to increase costs, decrease margins, reduce the competitiveness of products and services offered by current and future portfolio companies and adversely affect the revenues and profitability of companies whose businesses rely on goods imported from or exported to any country impacted by such policies.
+Added: In addition, these actions may adversely affect our suppliers and certain other customers of our portfolio companies, which could amplify the negative impact on our operating results or future cash flows.
Our asset management business depends in large part on our ability to raise capital from third-party investors.
If we are unable to raise capital from third-party investors, we would be unable to collect management fees or deploy their capital into investments and potentially collect carried interest, which would materially reduce our revenue and cash flow and adversely affect our financial condition.
−Removed: We raised $51.3 billion in new capital commitments in 2021 driven by the launch of our ninth U.S.
−Removed: real estate fund, eighth U.S.
−Removed: buyout fund and our CP Growth fund in our Global Private Equity segment, coupled with continued strength in fundraising for our Global Credit and Global Investment Solutions funds.
−Removed: However, we cannot assure that our prior success in raising capital will continue in the future.
+Added: We raised $81.2 billion in new capital commitments across 2021 and 2022, with 2022 fundraising being driven by $2.0 billion in additional third-party capital raised for our strategic investment in Fortitude, fundraising on our CLO Platform and our retail credit product (CTAC) and the launch of our third Credit Opportunities fund, within our Global Credit segment, and coupled with fundraising for our Global Private Equity and Global Investment Solutions funds.
+Added: We cannot assure that our prior success in raising capital will continue in the future.
+Added: In this respect, we anticipate the fundraising landscape will continue
+Added: to be increasingly competitive as the pace of capital deployment across the industry has resulted in fund products coming back to market faster and with larger target fund sizes than with prior vintages, and limited partners are reassessing their portfolio allocation targets in light of market volatility and their liquidity requirements.
+Added: As a result, fundraising in certain products—particularly in corporate private equity strategies—may take longer to complete and fund sizes may not meet levels they otherwise would in a more favorable market environment.
+Added: Slowdowns in fundraising may also delay catch-up management fees that would be charged to fund investors in subsequent closings and smaller fund sizes could result in lower management fees in the future.
Our ability to raise capital from third-party investors depends on a number of factors, including certain factors that are outside our control.
−Removed: Certain of these factors such as the performance of the stock market, the
−Removed: pace of distributions from our funds and from the funds of other asset managers or the asset allocation rules or regulations or investment policies to which such third-party investors are subject, could inhibit or restrict the ability of third-party investors to make investments in our investment funds.
+Added: Certain of these factors such as the performance of the stock market, the pace of distributions from our funds and from the funds of other asset managers or the asset allocation rules or regulations or investment policies to which such third-party investors are subject, whether by their own policy or the laws and regulations of their respective jurisdictions, could inhibit or restrict the ability of third-party investors to make investments in our investment funds.
+Added: For example, state politicians and lawmakers across a number of states, including Florida and Pennsylvania, have continued to put forth proposals or expressed intent to take steps to reduce or minimize the ability of their state pension funds to invest in alternative asset classes, including by proposing to increase the reporting or other obligations applicable to their state pension funds that invest in such asset classes.
+Added: Such proposals or actions would potentially discourage investment by such state pension funds in alternative asset classes by imposing meaningful compliance burdens and costs on them, which could adversely affect our ability to raise capital from such state pension funds.
+Added: Other states could potentially take similar actions, which may further impair our access to capital from an investor base that has historically represented a significant portion of our fundraising.
Third-party investors in private equity, real assets and private credit funds typically use distributions from prior investments to meet future capital calls.
−Removed: In cases where valuations of existing investments fall, the investment pace is delayed and the pace of distributions slows, investors may be unable or unwilling to make new commitments or fund existing commitments to third-party management investment funds such as those advised by us.
−Removed: Moreover, recently many funds sponsored by Carlyle and its competitors have invested more rapidly than in the past.
+Added: In cases where valuations of existing investments fall, the investment pace is delayed and/or the pace of distributions slows, investors may be unable or unwilling to make new commitments or fund existing commitments to third-party management investment funds such as those advised by us.
+Added: Moreover, many funds sponsored by us and our competitors have recently invested more rapidly than in the past.
As a result, investors may delay making new commitments until such time these investments start distributing capital.
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For example, there is a continuing shift away from defined benefit pension plans to defined contributions plans, which could reduce the amount of assets available for us to manage on behalf of certain of our clients.
−Removed: In addition, investors may downsize their investment allocations to alternative managers, including private funds and funds of funds vehicles, to rebalance a disproportionate weighting of their overall investment portfolio among asset classes.
+Added: In addition, investors may downsize their investment allocations to alternative managers, including private funds and fund of funds vehicles, to rebalance a disproportionate weighting of their overall investment portfolio among asset classes.
Investors may also seek to consolidate their investments with a smaller number of investment managers or prefer to pursue investments directly instead of investing through our funds, each of which could impact the amount of allocations they make to our funds.
+Added: For example, certain institutional investors are demonstrating a preference to in-source their own investment professionals and to make direct investments in alternative assets without the assistance of alternative asset advisers like us.
+Added: Such institutional investors may become our competitors and could cease to be our clients.
Moreover, as some existing investors cease or significantly curtail making commitments to alternative investment funds, we may need to identify and attract new investors in order to maintain or increase the size of our investment funds.
8 unchanged sentences
In addition, the evolving preferences of our fund investors may necessitate that alternatives to the traditional investment fund structure, such as managed accounts, smaller funds and co-investment vehicles, become a larger part of our business going forward.
−Removed: Certain investors have also implemented or may implement restrictions against investing in certain types of asset classes such as fossil fuels, which would affect our ability to raise new funds focused on those asset classes, such as funds focused on conventional energy or natural resources, and which could have a negative impact on our ability to exit certain of our energy investments, or our ability to invest capital in our conventional energy funds.
−Removed: Funds focused on investing in carbon-based energy (“Carbon Energy Funds”) remain a significant part of our business (8% of total AUM) so the persistence of weakened market fundamentals in the energy sector could translate into future performance below investor expectations which, together with negative sentiments around carbon energy funds, could result in less investor demand for these funds in the future.
−Removed: Carlyle has determined not to raise a successor fund to Carlyle Energy Mezzanine Opportunities Fund II or Carlyle Power Partners II.
−Removed: Carlyle’s future investments in carbon-based energy are expected to be made primarily through NGP in the United States and Carlyle International Energy Partners outside the United States.
−Removed: If we were unable to raise the next generation of our energy related funds, at the same levels or at all, our fee-paying AUM and future management fees could be adversely impacted.
+Added: Certain investors have also implemented or may implement restrictions against investing in certain
+Added: types of asset classes or sectors, such as hydrocarbons, which could affect our ability to raise new funds focused on those asset classes, such as funds focused on conventional energy or natural resources, and which could have a negative impact on our ability to exit certain of our energy investments, or our ability to invest capital in our conventional energy funds.
+Added: Given that funds focused on investing in carbon-based energy (“Carbon Energy Funds”) remain a part of our business (6% of total AUM as of December 31, 2022), the persistence of weakened market fundamentals in the energy sector could translate into future performance below investor expectations which, together with negative sentiments around carbon energy funds, could result in less investor demand for these funds in the future.
+Added: Our future investments in carbon-based energy are expected to be made primarily through our non-controlling interest in NGP in the United States and Carlyle International Energy Partners outside the United States.
+Added: If we, or NGP, were unable to raise the next generation of our energy related funds, at the same levels or at all, our fee-paying AUM and future management fees could be adversely impacted.
This could increase our cost of raising capital at the scale we have historically achieved.
−Removed: Our investment in NGP entitles us to 55% of the management fee-related revenue of the NGP entities that serve as advisors to the NGP Energy Funds and is subject to impairment under the U.S.
−Removed: GAAP accounting for equity method investments.
We evaluate our equity method investment in NGP for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable, but no less than quarterly.
1 unchanged sentence
As of December 31, 2022, we continue to believe that our investment in NGP is not impaired.
−Removed: Further, fund investors and shareholders are increasingly focused on ESG matters and certain fund investors consider ESG factors in determining whether to invest in our funds and our common stock.
−Removed: In addition, some fund investors use third-party benchmarks or scores to measure our ESG practices and decide whether to invest in our funds, and capital commitments to us and may condition capital commitments on taking or refraining from taking certain actions.
−Removed: Investors and stockholders may choose not to invest in our funds or exclude our common stock from their investments if our ESG practices do not fit their investment profiles, or if we fail to demonstrate progress towards our ESG goals, which could adversely impact our reputation our ability to raise capital and could cause the price of our common stock to decrease.
−Removed: The failure to successfully raise capital commitments to new investment funds may also expose us to credit risk in respect of financing that we may provide such funds.
+Added: Moreover, fund investors, shareholders and prospective investors, including pension funds, are increasingly focused on ESG matters and certain investors consider ESG factors in determining whether to invest in our funds and our common stock.
+Added: In addition, some fund investors use third-party benchmarks or scores to assess our ESG practices and may use this as an input to decide whether to commit capital to us or invest in our funds and, further, may condition capital commitments to us on our taking or refraining from taking certain actions.
+Added: Investment funds that specialize in companies that perform well in such assessments are increasingly popular.
+Added: ESG ratings may vary widely in methodology, which often are not fully publicly disclosed by ratings providers.
+Added: Investors and stockholders may choose not to invest in our funds or exclude our common stock from their investments for a range of reasons, including if our ESG practices or ratings do not fit their investment profiles, if we fail or are perceived to fail to demonstrate adequate progress toward ESG goals, initiatives, commitments, or objectives (including with respect to any climate-related targets and corresponding timelines), which could adversely impact our reputation and our ability to raise capital, impair our ability to maintain the size of our funds, and could cause the price of our common stock to decrease.
+Added: Conversely, anti-ESG sentiment has also gained momentum across the United States, with several states having enacted or proposed “anti-ESG” policies, legislation or issued related legal opinions.
+Added: For example, boycott bills target financial institutions that “boycott” or “discriminate against” companies in certain industries (e.g., energy and mining) and prohibit state entities from doing business with such institutions and/or investing the state’s assets (including pension plan assets) through such institutions, and ESG investment prohibitions require that state entities or managers/administrators of state investments make investments based solely on pecuniary factors without consideration of ESG factors.
+Added: If investors subject to such legislation viewed our funds or ESG practices, including our climate-related goals and commitments, as being in contradiction of such “anti-ESG” policies, legislation or legal opinions, such investors may not invest in our funds, our ability to maintain the size of our funds could be impaired, and it could negatively affect the price of our common stock.
+Added: The failure to successfully raise capital commitments to new investment funds may also expose us to credit risk in respect of financing that we may provide to such funds.
When existing capital commitments to a new investment fund are insufficient to fund in full a new investment fund’s participation in a transaction, we may lend money to or borrow money from financial institutions on behalf of such investment funds to bridge this difference and repay this financing with capital from subsequent investors to the fund.
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Our past experience with growth of AUM provides no assurance with respect to the future.
+Added: We have increasingly undertaken business initiatives to increase the number and type of investment products we offer to retail investors, which could expose us to new and greater levels of risk.
+Added: Although retail investors have been part of our historic distribution efforts, we have increasingly undertaken business initiatives to increase the number and type of investment products we offer to high-net-worth individuals, family offices and other mass affluent investors.
+Added: In some cases we seek to distribute our unregistered funds to such retail investors indirectly through feeder funds sponsored by brokerage firms, private banks or other similar third-parties, and in other cases directly to
+Added: the qualified clients of private banks, independent investment advisors and brokers.
+Added: In other cases, we offer registered investment products specifically designed for direct investment by both retail and institutional investors.
+Added: Our initiatives to access retail investors entail the investment of resources and our objectives may not be fully realized.
+Added: Accessing retail investors and selling retail directed products exposes us to new and greater levels of risk, including heightened litigation and regulatory enforcement risks.
+Added: To the extent we distribute retail products through new channels, including through unaffiliated firms, we may not be able to effectively monitor or control the manner of their distribution, which could result in litigation against us, including with respect to, among other things, claims that products distributed through such channels are distributed to customers for whom they are unsuitable or distributed in any other inappropriate manner.
+Added: Although we seek to ensure that, through both due diligence and supervisory procedures, retail investors conduct themselves responsibly when accessing our investment products through these channels, to the extent that our investment products are being distributed through third parties, we are exposed to reputational damage and possible legal liability to the extent such third parties improperly sell our products to investors.
+Added: Similarly, the hiring of employees to oversee independent advisors and brokers presents risks if they fail to follow training, review and supervisory procedures.
+Added: In addition, the distribution of retail products through new channels, whether directly or through market intermediaries, could expose us to additional regulatory risk in the form of allegations of improper conduct and/or actions against us by state and federal regulators in the United States and regulators in jurisdictions outside the United States with respect to, among other things, product suitability, conflicts of interest and the adequacy of disclosure to customers to whom our products are distributed through those channels.
Our investors may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable to us than those of our existing funds, which could adversely affect our revenues.
2 unchanged sentences
Such terms could restrict our ability to raise investment funds with investment objectives or strategies that compete with existing funds, reduce fee revenues we earn, reduce the percentage of profits on third-party capital that we share in or add expenses and obligations for us in managing the fund or increase our potential liabilities, all of which could ultimately reduce our profitability.
−Removed: Additionally, a change in terms which increases the amount of fee revenue the fund investors are entitled to could result in a significant decline in revenue generated from transaction fees.
−Removed: For instance, our more recent generations of U.S., Europe and Asia buyout funds have increased the percentage of transaction fees that are shared with fund investors from 80% to 100% of the fees we generate.
+Added: In addition, a change in terms that increases the amount of fee revenue the fund investors are entitled to could result in a significant decline in revenue generated from transaction fees.
+Added: For instance, our more recent generations of U.S., Europe and Asia buyout funds have increased the percentage of transaction fees that are shared with fund investors from 80% to 100% of the allocable fees we generate.
Given this change in terms, and to the extent we change our fee practices for other successor funds, we could experience a meaningful decline in the amount of transaction fee revenue we earn.
9 unchanged sentences
Any modification of our existing fee or carry arrangements or the fee or carry structures for new investment funds could adversely affect our results of operations.
−Removed: See “—The alternative asset management business is intensely competitive.”
+Added: See “Risks Related to Our Business Operations—Risks Related to the Assets We Manage—The alternative asset management business is intensely competitive.”
+Added: We may need to pay “giveback” obligations if and when they are triggered under the governing agreements with our investors.
+Added: If, at the end of any of the life of our Global Private Equity and Global Credit carry funds (or earlier with respect to certain of our funds), the carry fund has not achieved investment returns that (in most cases) exceed the preferred return threshold or (in almost all cases) the general partner receives net profits over the life of the fund in excess of its allocable share under the applicable partnership agreement, we will be obligated to repay an amount equal to the extent to which carried interest that was previously distributed to us exceeds the amounts to which we are ultimately entitled.
+Added: This repayment obligation is known as a “giveback” obligation.
+Added: As of December 31, 2022, we had accrued a giveback obligation of $40.9 million, representing the giveback obligation that would need to be paid by the firm if the carry funds were liquidated at their current fair values at that date, and of which approximately $22.0 million is attributable to us.
+Added: The remaining obligations are related to amounts previously distributed to our senior Carlyle professionals, the majority of which relates to the accrued giveback obligation from CSP III and the Legacy Energy Funds.
+Added: When payment of a giveback obligation is anticipated (or “realized”), the portion of this liability that is expected to be borne by the common stockholders (i.e., the amount not expected to be funded by Carlyle professionals) has the effect of reducing our Distributable Earnings.
+Added: Any remaining giveback obligation required to be funded on behalf of our funds would generally be due upon the liquidation of the remaining assets from the funds.
+Added: If, as of December 31, 2022, all of the investments held by our carry funds were deemed worthless, the amount of realized and distributed carried interest subject to potential giveback would have been $1.5 billion, on an after-tax basis where applicable.
+Added: As of December 31, 2022, we have realized $239.3 million in aggregate giveback obligations since inception, which were funded primarily through collection of employee receivables related to giveback obligations and from Carlyle professionals and other non-controlling interests for their portion of the obligation.
+Added: Of the $239.3 million in aggregate giveback obligations realized from inception to December 31, 2022, $70.6 million was attributable to Carlyle.
+Added: See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Investment Income.”
+Added: Although a giveback obligation is specific to each person who received a distribution, and not a joint obligation, the governing agreements of our funds generally provide that to the extent a recipient does not fund his or her respective share, then we may have to fund such additional amounts beyond the amount of carried interest we retained, although we generally will retain the right to pursue any remedies that we have under such governing agreements against those carried interest recipients who fail to fund their obligations.
+Added: As of December 31, 2022, approximately $18.9 million of our $40.9 million accrued giveback obligation is attributable to various current and former senior Carlyle professionals.
+Added: We have historically withheld a portion of the cash from carried interest distributions to individual senior Carlyle professionals and other employees as security for their potential giveback obligations.
+Added: We may need to use or reserve cash to repay such giveback obligations instead of using the cash for other purposes.
+Added: See Part I, Item 1 “Business—Structure and Operation of Our Investment Funds—Incentive Arrangements / Fee Structure” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations—Contingent Obligations (Giveback)” and Notes 3 and 10 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
+Added: Third-party investors in substantially all of our carry funds have the right to remove the general partner of the fund for cause, to accelerate the liquidation date of the investment fund without cause by a simple majority vote and to terminate the investment period under certain circumstances and investors in certain of the investment funds we advise may redeem their investments.
+Added: These events would lead to a decrease in our revenues, which could be substantial.
+Added: The governing agreements of almost all of our carry funds provide that, subject to certain conditions, third-party investors in those funds have the right to remove the general partner of the fund for cause or to accelerate the liquidation date of the investment fund without cause by a simple majority vote.
+Added: In addition, our investment vehicles that are structured as “funds of one,” or separately managed accounts, have a single investor or a few affiliated investors that typically have the right to terminate the investment period or cause a dissolution of the vehicle under certain circumstances.
+Added: These actions would result in a reduction in management fees we would earn from such investment funds, vehicles, or accounts, and could result in a significant reduction in the expected amounts of total carried interest and incentive fees from those investment funds, vehicles, or accounts.
+Added: Carried interest and incentive fees could be significantly reduced as a result of our inability to maximize the value of investments by an investment fund during the liquidation process or in the event of the triggering of a “giveback” obligation.
+Added: Finally, the applicable investment funds, vehicles, or accounts would cease to exist after completion of liquidation and winding-up.
+Added: In addition, the governing agreements of certain of our investment funds provide that in the event certain “key persons” in our investment funds do not meet specified time commitments with regard to managing the fund (for example, certain of the investment professionals serving on the investment committee or advising the fund), then investors in certain funds have the right to vote to terminate the investment period by a simple majority vote in accordance with specified procedures, accelerate the withdrawal of their capital on an investor-by-investor basis, or the fund’s investment period will automatically terminate and the vote of a simple majority of investors is required to restart it.
+Added: While we believe that our investment professionals have appropriate incentives to remain in their respective positions, based on equity ownership, profit participation and other contractual provisions, we are not able to guarantee the ongoing participation of the management team members in respect of our funds.
+Added: In addition to having a significant negative impact on our revenue, earnings and cash flow, the occurrence of a key person event with respect to any of our investment funds would likely result in significant reputational damage to us and could negatively impact our future fundraising efforts.
+Added: For example, the AlpInvest funds generally provide for suspension of the investment period if there is a key person event, the right of a supermajority of investors to remove the general partner with cause and, in some cases, without cause, but generally have not provided for liquidation without cause.
+Added: Where AlpInvest funds include “key person” provisions, they are focused on specific existing AlpInvest personnel, as applicable.
+Added: In addition, because our investment funds generally have an adviser that is registered under the Advisers Act, the management agreements of each of our investment funds would be terminated upon an “assignment” to a third-party of these agreements without appropriate investor consent, which assignment may be deemed to occur in the event these advisers were to experience a change of control.
+Added: We cannot be certain that consents required to assignments of our investment management agreements will be obtained if a change of control occurs.
+Added: “Assignment” of these agreements without investor consent could cause us to lose the fees we earn from such investment funds.
+Added: Third-party investors in our investment funds with commitment-based structures may not satisfy their contractual obligation to fund capital calls when requested by us, which could adversely affect a fund’s operations and performance.
+Added: Investors in our carry funds make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods.
+Added: We depend on investors fulfilling their commitments when we call capital from them in order for those funds to consummate investments and otherwise pay their obligations (for example, management fees) when due.
+Added: Any investor that did not fund a capital call would generally be subject to several possible penalties, including having a significant amount of its existing investment forfeited in that fund.
+Added: However, the impact of the penalty is directly correlated to the amount of capital previously invested by the investor in the fund and if an investor has invested little or no capital, for instance, early in the life of the fund, then the forfeiture penalty may not be as meaningful.
+Added: Investors may also negotiate for lesser or reduced penalties at the outset of the fund, thereby inhibiting our ability to enforce the funding of a capital call.
+Added: Our use of subscription lines of credit to purchase an investment prior to calling capital from fund investors could increase the prevalence of defaulting limited partners.
+Added: Should the value of an investment funded through a fund line-of-credit decline, especially early in a fund’s life-cycle where minimal capital has been contributed by the fund’s investors, a limited partner may decide not to fund its commitment.
+Added: In addition, third-party investors typically use distributions from prior investments to meet future capital calls.
+Added: In cases where valuations of investors’ existing investments fall and the pace of distributions slows, investors may be unable to make new commitments to third-party managed investment funds such as those advised by us.
+Added: If investors were to fail to satisfy a significant amount of capital calls for any particular fund or funds, the operation and performance of those funds could be materially and adversely affected.
+Added: In addition, our failure to comply with applicable pay-to-play laws, regulations and/or policies adopted by a number of states and municipal pension funds, as well as the New York Attorney General’s Public Pension Fund Reform Code of Conduct, may, in certain instances, excuse a public pension fund investor from its obligation to make further capital contributions relating to all or any part of an investment or allow it to withdraw from the fund.
+Added: If a public pension fund investor were to seek to be excused from funding a significant amount of capital calls for any particular fund or funds, the operation and performance of those funds could be materially and adversely affected.
Valuation methodologies for certain assets in our funds can involve subjective judgments, and the fair value of assets established pursuant to such methodologies may be incorrect, which could result in the misstatement of fund performance and accrued performance allocations.
1 unchanged sentence
We determine the fair value of the investments of each of our investment funds at least quarterly based on the fair value guidelines set forth by generally accepted accounting principles in the United States (“U.S.
−Removed: The fair value measurement accounting guidance establishes a hierarchal disclosure framework that ranks the observability of market inputs used in measuring financial instruments at fair value.
+Added: The fair value
+Added: measurement accounting guidance establishes a hierarchal disclosure framework that ranks the observability of market inputs used in measuring financial instruments at fair value.
The observability of inputs is impacted by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants.
8 unchanged sentences
Changes in values attributed to investments from quarter to quarter may result in volatility in the net asset values and results of operations that we report from period to period.
−Removed: Also, a situation where asset values turn out to be materially different than values reflected in prior fund net asset values could cause investors to lose confidence in us, which could in turn result in difficulty in raising additional funds.
−Removed: The historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in our common stock.
−Removed: We have presented in this Form 10-K information relating to the historical performance of our investment funds.
−Removed: The historical and potential future returns of the investment funds that we advise, however, are not directly linked to returns in our common stock.
−Removed: Therefore, any continued positive performance of the investment funds that we advise will not necessarily result in positive returns on an investment in our common stock.
−Removed: However, poor performance of the investment funds that we advise would cause a decline in our revenue from such investment funds, and could therefore have a negative effect on our performance, our ability to raise future funds and in all likelihood the returns on an investment in our common stock.
−Removed: Moreover, with respect to the historical returns of our investment funds:
−Removed: • our historical returns derive largely from the performance of our existing funds, and we may create new funds in the future that reflect a different asset mix and different investment strategies, as well as a varied geographic and industry exposure as compared to our present funds, and any such new funds could have lower returns than our existing or previous funds;
−Removed: • the performance of our carry funds reflects our valuation of the unrealized investments held in those funds using assumptions that we believe are reasonable under the circumstances, but the actual realized return on these investments will depend on, among other factors, future operating results and the value of assets and market conditions at the time of disposition all of which may differ from the assumptions on which the valuations in our historical returns are based, which may adversely affect the ultimate value realized from those unrealized investments;
−Removed: • in recent years, there has been increased competition for private equity investment opportunities resulting from the increased amount of capital invested in alternative investment funds, high liquidity in debt markets and strong equity markets, and the increased competition for investments may reduce our returns in the future;
−Removed: • the rates of returns of some of our funds in certain years have been positively influenced by a number of investments that experienced rapid and substantial increases in value following the dates on which those investments were made, which may not occur with respect to future investments;
−Removed: • our investment funds’ returns in some years have benefited from investment opportunities and general market conditions that may have been significantly more favorable for generating positive performance than current market conditions or market conditions that we may experience in the future and may not repeat themselves;
−Removed: • our current or future investment funds might not be able to avail themselves of comparable investment opportunities or market conditions;
−Removed: and the circumstances under which our funds may make future investments may differ significantly from those conditions prevailing in the past;
−Removed: • newly-established funds may generate lower returns during the period that they take to deploy their capital;
−Removed: • the introduction of fund-level leverage in more recent funds has increased the rates of returns in those funds compared to what they would have been without the use of such leverage.
−Removed: Our recent performance has benefited from recent high multiples and asset prices.
−Removed: In the current market environment, we expect that earning such returns on new investments will be much more difficult than in the past and the future internal rate of return for any current or future fund may vary considerably from the historical internal rate of return generated by any particular fund or for our funds as a whole.
−Removed: Future returns will also be affected by the risks described elsewhere in this report, including risks of the industries and businesses in which a particular fund invests.
−Removed: “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Analysis—Fund Performance Metrics” for additional information.
+Added: In addition, a situation where asset values turn out to be materially different than values reflected in prior fund net asset values could cause investors to lose confidence in us, which could in turn result in difficulty in raising additional funds.
+Added: The financial projections of our portfolio companies could prove inaccurate.
+Added: Our funds generally establish the capital structure of portfolio companies on the basis of financial projections prepared by the management of such portfolio companies.
+Added: These projected operating results will normally be based primarily on judgments of the management of the portfolio companies.
+Added: In all cases, projections are only estimates of future results that are based upon assumptions made at the time that the projections are developed.
+Added: General economic conditions, which are not predictable, along with other factors may cause actual performance to fall short of the financial projections that were used to establish a given portfolio company’s capital structure.
+Added: Because of the leverage that we typically employ in our investments, this could cause a substantial decrease in the value of our equity holdings in the portfolio company.
+Added: The inaccuracy of financial projections could cause us to misstate the values of our fund’s investments and, therefore, our accrued performance allocations, and ultimately cause our funds’ performance to fall short of our expectations.
+Added: The due diligence process that we undertake in connection with investments by our investment funds may not reveal all facts that may be relevant in connection with an investment.
+Added: Before making private equity and other investments, we conduct due diligence that we deem reasonable and appropriate based on the known facts and circumstances applicable to each investment.
+Added: The objective of the due diligence process is to identify attractive investment opportunities based on the known facts and circumstances and initial risk assessment surrounding an investment and, depending on our ownership or control of private equity investments, prepare a framework that may be used from the date of an acquisition to drive operational achievement and value creation.
+Added: When conducting due diligence, we may be required to evaluate important and complex business, financial, regulatory, tax, accounting, environmental (including climate change), social, governance and legal issues.
+Added: Outside consultants, legal advisors, accountants and investment banks may be involved in the due diligence process in varying degrees depending on the type of investment.
+Added: Nevertheless,
+Added: when conducting due diligence and making an assessment regarding an investment, we rely on the resources available to us, including information provided by the target of the investment and, in some circumstances, third-party investigations and analysis.
+Added: The due diligence process may at times be subjective with respect to newly-organized companies for which only limited information is available.
+Added: Due to intense competition in the marketplace we may have less time than in the past to complete our due diligence or our competitors may review less due diligence thereby increasing the speed with which they complete their review.
+Added: We cannot be certain that the due diligence investigation that we carry out with respect to any investment opportunity will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity.
+Added: In this respect, information and data provided or utilized by third-party advisors during diligence may be incomplete, inaccurate or unavailable, and may cause us to incorrectly identify, prioritize, assess or analyze or omit to examine in detail the investee entity’s ESG practices and/or related risks and opportunities.
+Added: Moreover, considering ESG factors when evaluating an investment could result in the selection or exclusion of certain investments based on our or a third party advisor’s view of certain ESG-related and other factors or could cause a fund to not make an investment that it may have otherwise made, which carries risk that our funds may perform differently than investment funds that do not take the same ESG factors into account in a congruent manner.
+Added: In addition, ESG factors are only some of the many factors we consider in making an investment, and there is no guarantee that our consideration of ESG factors during due diligence will ultimately enhance the long-term value of our investments.
+Added: The due diligence process in connection with carve-out transactions may underestimate the complexity and/or level of dependence a business has on its parent company and affiliated entities.
+Added: Given that a carve-out business often does not have financial statements that accurately reflect its true financial performance as a stand-alone business, due diligence assessments of such investments can be particularly difficult.
+Added: Instances of fraud, accounting irregularities and other improper, illegal or deceptive practices can be difficult to detect, and fraud and other deceptive practices can be widespread in certain jurisdictions.
+Added: Several of our funds invest in emerging market countries that may not have established laws and regulations that are as stringent as in more developed nations, or where existing laws and regulations may not be consistently enforced.
+Added: For example, our funds invest throughout jurisdictions that have material perceptions of corruption according to international rating standards (such as “Transparency International’s Corruption Perceptions Index”) such as China, India, Indonesia, Latin America, MENA and Sub-Saharan Africa.
+Added: Similarly, our funds invest in companies in the U.S.
+Added: and other jurisdictions and regions with low perceived corruption but whose business may be conducted in other high-risk jurisdictions.
+Added: Due diligence on investment opportunities in these jurisdictions is frequently more complicated because consistent and uniform commercial practices in such locations may not be developed or our access to information may be very limited.
+Added: Fraud, accounting irregularities and deceptive practices can be especially difficult to detect in such locations.
+Added: In addition, investment opportunities may arise in companies that have historic and/or unresolved regulatory, tax, fraud or accounting related investigations, audits or inquiries and/or have been subjected to public accusations of improper behavior.
+Added: However, even heightened and specific due diligence and investigations with respect to such matters may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity and/or will be able to accurately identify, assess and quantify settlements, enforcement actions and judgments that may arise and which could have a material adverse effect on the portfolio company’s business, financial condition and operations, as well as potential significant harm to the portfolio company’s reputation and prospects.
+Added: We cannot be certain that our due diligence investigations will result in investments being successful or that the actual financial performance of an investment will not fall short of the financial projections we used when evaluating that investment.
+Added: Failure to identify risks associated with our investments could have a material adverse effect on our business.
Dependence on significant leverage in investments by our funds could adversely affect our ability to achieve attractive rates of return on those investments.
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These precautionary efforts provided availability of working capital and avoided unnecessary business disruption.
−Removed: Certain of these portfolio companies may retain this capital for an extended period and therefore, the leverage at these portfolio companies will increase.
+Added: Certain of these portfolio companies may retain this capital for an extended period.
+Added: Therefore, the leverage at these portfolio companies will increase.
An increase in either the general levels of interest rates or in the risk spread demanded by sources of indebtedness would make it more expensive to finance those investments, thereby reducing returns.
+Added: While increases in interest rates may lead to higher risk adjusted returns for our Global Credit business, when coupled with restrictions on the deductibility of interest expense, such increases may also lead to higher default rates, lower valuations of existing assets and cause deployment of capital to slow, and cause cash flow issues and/or credit challenges if such interest rates have not otherwise been fixed or hedged.
Increases in interest rates could also make it more difficult to locate and consummate private equity investments because other potential buyers, including operating companies acting as strategic buyers, may be able to bid for an asset at a higher price due to a lower overall cost of capital or their ability to benefit from a higher amount of cost savings following the acquisition of the asset.
−Removed: In addition, a portion of the indebtedness used to finance private equity investments often includes leveraged loans and high-yield debt securities issued in the public capital markets and debt instruments privately placed with institutional investors in the private capital markets.
+Added: See “Risks Related to our Company—Adverse economic and market conditions and other events or conditions throughout the world could negatively impact our business in many ways, including by reducing the value or performance of the investments made by our investment funds and reducing the ability of our investment funds to raise capital, any of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.” In addition, a portion of the indebtedness used to finance private equity investments often includes leveraged loans and high-yield debt securities issued in the public capital markets and debt instruments privately placed with institutional investors in the private capital markets.
Availability of capital from the leveraged loan, high-yield and private debt markets is subject to significant volatility, and there may be times when we might not be able to access those markets at attractive rates, or at all, when completing an investment.
Certain investments may also be financed through borrowings on fund-level debt facilities, which may or may not be available for a refinancing at the end of their respective terms.
−Removed: Additionally, to the extent there is a reduction in the availability of financing for extended periods of time, the purchasing power of a prospective buyer may be more limited, adversely impacting the fair value of our funds’ investments and thereby reducing the acquisition price.
+Added: Moreover, to the extent there is a reduction in the availability of financing for extended periods of time, the purchasing power of a prospective buyer may be more limited, adversely impacting the fair value of our funds’ investments and thereby reducing the acquisition price.
Finally, recent developments in U.S.
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and other jurisdictions.
−Removed: See “ —Risks Related to Taxation—Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could negatively impact our effective tax rate and tax liability .” Such restrictions could reduce the after-tax rates of return on the affected investments, which may have an adverse impact on our business and financial results.
+Added: See “Risks Related to Taxation—Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could negatively impact our effective tax rate, tax liability and/or the performance of certain funds should unexpected taxes be assessed to portfolio investments (companies) or fund income.” Such restrictions could reduce the after-tax rates of return on the affected investments, which may have an adverse impact on our business and financial results.
Investments in highly leveraged entities are also inherently more sensitive to declines in revenue, increases in expenses and interest rates and adverse economic, market and industry developments.
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Any of the foregoing circumstances could have a material adverse effect on our results of operations, financial condition and cash flow.
−Removed: The alternative asset management business is intensely competitive.
−Removed: The alternative asset management business is intensely competitive, with competition based on a variety of factors, including investment performance, business relationships, quality of service provided to investors, investor liquidity and willingness to invest, fund terms (including fees), brand recognition, types of products offered, consideration of ESG issues and business reputation.
−Removed: Our investment business, as well as our investment funds, competes with a number of private equity funds, specialized investment funds, hedge funds, corporate buyers, traditional asset managers, real estate development companies, commercial banks, investment banks and other financial institutions (as well as sovereign wealth funds and other institutional investors).
−Removed: Additionally, developments in financial technology (or fintech), such as a distributed ledger technology (or blockchain), have the potential to disrupt the financial industry and change the way financial institutions, as well as asset managers, do business.
−Removed: A number of factors serve to increase our competitive risks:
−Removed: • a number of our competitors in some of our businesses have greater financial, technical, marketing and other resources and more personnel than we do;
−Removed: • some of our funds may not perform as well as competitors’ funds or other available investment products;
−Removed: • fund investors may reduce their investments in our funds or decrease their allocations in new funds based on a variety of factors, such as the occurrence of an economic downturn, their available capital, regulatory requirements, a desire to consolidate their relationships with investment firms or other considerations;
−Removed: • several of our competitors have significant amounts of capital, and many of them have similar investment objectives to ours, which may create additional competition for investment opportunities and may reduce the size and duration of pricing inefficiencies that otherwise could be exploited;
−Removed: • some of these competitors (including strategic competitors) may also have a lower cost of capital and access to funding sources that are not available to us, which may create competitive disadvantages for our funds with respect to investment opportunities;
−Removed: • some of our competitors may have higher risk tolerances, different risk assessments or lower return thresholds than us, which could allow them to consider a wider variety of investments and to bid more aggressively or more quickly than us for investments that we want to make;
−Removed: • some of our competitors may be subject to less regulation and accordingly may have more flexibility to undertake and execute certain businesses or investments than we do and/or bear less compliance expense than us;
−Removed: • some of our competitors may have more flexibility than us in raising certain types of investment funds under the investment management contracts they have negotiated with their investors;
−Removed: • some of our competitors may have better expertise or be regarded by investors as having better expertise in a specific asset class or geographic region than we do;
−Removed: • our competitors that are corporate buyers may be able to achieve synergistic cost savings in respect of an investment, which may provide them with a competitive advantage in bidding for an investment;
−Removed: • our competitors have instituted or may institute low cost high speed financial applications and services based on artificial intelligence and new competitors may enter the asset management space using new investment platforms based on artificial intelligence;
−Removed: • the proliferation of special purpose acquisition companies (“SPACs”) entering the market may compete with our funds for investment opportunities and drive up asset prices;
−Removed: • there are relatively few barriers to entry impeding the formation of new investment firms, and the successful efforts of new entrants into our various businesses, including former “star” portfolio managers at large diversified financial institutions as well as such institutions themselves, is expected to continue to result in increased competition;
−Removed: • some investors may prefer to pursue investments directly instead of investing through one of our funds;
−Removed: • some investors may prefer to invest with an asset manager that is not publicly traded or is smaller with only one or two investment products that it manages;
−Removed: • other industry participants may, from time to time, seek to recruit our investment professionals and other employees away from us.
−Removed: We may lose investment opportunities in the future if we do not match investment prices, structures, products or terms offered by our competitors.
−Removed: Alternatively, we may experience decreased rates of return and increased risks of loss if we match investment prices, structures and terms offered by our competitors.
−Removed: Moreover, if we are forced to compete with other asset managers on the basis of price, we may not be able to maintain our current fund fee and carried interest terms.
−Removed: We have historically competed primarily on the performance of our funds, and not on the level of our fees or carried interest relative to those of our competitors.
−Removed: However, there is a risk that fees and carried interest in the asset management industry will decline, without regard to the historical performance of a manager.
−Removed: Fee or carried interest income reductions on existing or future funds, without corresponding decreases in our cost structure, would adversely affect our revenues and profitability.
−Removed: investors may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable to us than those of our existing funds, which could adversely affect our revenues.”
−Removed: The attractiveness of our investment funds relative to investments in other investment products could decrease depending on economic conditions.
−Removed: In addition, to the extent that any changes in tax law make debt financing less attractive to certain categories of borrowers, this could adversely affect the investment opportunities for our credit-focused funds.
−Removed: This competitive pressure could adversely affect our ability to make successful investments and limit our ability to raise future investment funds, either of which would adversely impact our business, revenue, results of operations and cash flow.
−Removed: See “—Our investors may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable to us than those of our existing funds, which could adversely affect our revenues.”
−Removed: The due diligence process that we undertake in connection with investments by our investment funds may not reveal all facts that may be relevant in connection with an investment.
−Removed: Before making private equity and other investments, we conduct due diligence that we deem reasonable and appropriate based on the known facts and circumstances applicable to each investment.
−Removed: The objective of the due diligence process is to identify attractive investment opportunities based on the known facts and circumstances and initial risk assessment surrounding an investment and, depending on our ownership or control of private equity investments, prepare a framework that may be used from the date of an acquisition to drive operational achievement and value creation.
−Removed: When conducting due diligence, we may be required to evaluate important and complex business, financial, regulatory, tax, accounting, environmental (including climate change), social, governance and legal issues.
−Removed: Outside consultants, legal advisors, accountants and investment banks may be involved in the due diligence process in varying degrees depending on the type of investment.
−Removed: Nevertheless, when conducting due diligence and making an assessment regarding an investment, we rely on the resources available to us, including information provided by the target of the investment and, in some circumstances, third-party investigations and analysis.
−Removed: The due diligence process may at times be subjective with respect to newly-organized companies for which only limited information is available.
−Removed: Due to intense competition in the marketplace we may have less time than in the past to complete our due diligence or our competitors may review less due diligence thereby increasing the speed with which they complete their review.
−Removed: We cannot be certain that the due diligence investigation that we carry out with respect to any investment opportunity will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity, which may also be further exacerbated by the COVID-19 pandemic, which, in some cases, has changed the way we conduct due diligence due to travel and other health restrictions that may affect our ability to have in person meetings with certain potential target company personnel, customers, vendors and other service providers.
−Removed: The due diligence process in connection with carve-out transactions may underestimate the complexity and/or level of dependence a business has on its parent company and affiliated entities.
−Removed: Because a carve-out business often does not have financial statements that accurately reflect its true financial performance as a stand-alone business, due diligence assessments of such investments can be particularly difficult.
−Removed: Instances of fraud, accounting irregularities and other improper, illegal or deceptive practices can be difficult to detect, and fraud and other deceptive practices can be widespread in certain jurisdictions.
−Removed: Several of our funds invest in emerging market countries that may not have established laws and regulations that are as stringent as in more developed nations, or where existing laws and regulations may not be consistently enforced.
−Removed: For example, our funds invest throughout jurisdictions that have material perceptions of corruption according to international rating standards (such as “Transparency International’s Corruption Perceptions Index”) such as China, India, Indonesia, Latin America, MENA and Sub-Saharan Africa.
−Removed: Similarly, our funds invest in companies in the U.S.
−Removed: and other jurisdictions and regions with low perceived corruption but whose business may be conducted in other high-risk jurisdictions.
−Removed: Due diligence on investment opportunities in these jurisdictions is frequently more complicated because consistent and uniform commercial practices in such locations may not be developed or our access to information may be very limited.
−Removed: Fraud, accounting irregularities and deceptive practices can be especially difficult to detect in such locations.
−Removed: In addition, investment opportunities may arise in companies that have historic and/or unresolved regulatory, tax, fraud or accounting related investigations, audits or inquiries and/or have been subjected to public accusations of improper behavior.
−Removed: However, even heightened and specific due diligence and investigations with respect to such matters may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity and/or will be able to accurately identify, assess and quantify settlements, enforcement actions and judgments that may arise and which could have a material adverse effect on the portfolio company’s business, financial condition and operations, as well as potential significant harm to the portfolio company’s reputation and prospects.
−Removed: We cannot be certain that our due diligence investigations will result in investments being successful or that the actual financial performance of an investment will not fall short of the financial projections we used when evaluating that investment.
−Removed: Failure to identify risks associated with our investments could have a material adverse effect on our business.
+Added: Changes in the debt financing markets or higher interest rates could negatively impact the ability of certain of our funds and their portfolio companies to obtain attractive financing or re-financing and could increase the cost of such financing if it is obtained, which could lead to lower-yielding investments and could potentially decrease our net income.
+Added: A significant contraction or weakening in the market for debt financing or other adverse change relating to the terms of debt financing, including higher interest rates and equity requirements and more restrictive covenants, could have a material adverse impact on our business and that of our investment funds and their portfolio companies.
+Added: In recent years, many jurisdictions, including the United States, have introduced (or are considering introducing) new restrictions on the deductibility of interest expense, which could negatively impact the financing of new investments or the operations of our funds’ portfolio companies.
+Added: Regulatory changes that constrain banks’ ability to provide debt financing also could have a material adverse impact on our business and that of our investment funds and their portfolio companies.
+Added: In addition, higher interest rates may create downward pressure on the price of real estate, increase the cost and availability of debt financing for the transactions our funds may pursue and decrease the value of fixed-rate debt investments made by our funds.
+Added: If our funds are unable to obtain committed debt financing for potential acquisitions or are only able to obtain debt financing at unfavorable interest rates or on unfavorable terms, our funds may have difficulty completing acquisitions that may have otherwise been profitable or if completed, such acquisitions could generate lower than expected profits, each of which could lead to a decrease in our net income.
+Added: Moreover, if our ability to deduct corporate interest expense is substantially limited, our funds may face increased competition from strategic buyers of assets who may have an overall lower cost of capital or the ability to benefit from a higher amount of cost savings following an acquisition, which could lead to a decrease in our net income.
+Added: In addition, rising interest rates, coupled with periods of significant equity and credit market volatility may potentially make it more difficult for us to find attractive opportunities for our funds to exit and realize value from their existing investments.
+Added: Any failure by lenders to provide previously committed financing can also expose us to potential claims by sellers of businesses that we may have contracted to purchase.
+Added: Our funds’ portfolio companies also regularly utilize the corporate loan and bond markets to obtain financing for their operations.
+Added: While credit was available for much of 2020 and 2021 and new debt issuance hit record levels in some markets, the onset of the COVID-19 pandemic exhibited how abruptly credit markets can weaken from exogenous shocks and become unavailable or unattractive for issuers.
+Added: For example, in the first and early second quarters of 2020, corporate debt issuance and merger and acquisition activity decreased significantly as market volatility rose and credit spreads widened.
+Added: In addition, corporate debt issuance and merger and acquisition activity again decreased significantly in 2022, as rising interest rates and recession concerns impacted the credit markets.
+Added: It is possible that during periods of stress, tightening in the credit markets could render debt financing difficult to obtain, less attractive or more expensive.
+Added: To the extent monetary policy, tax or other regulatory changes or difficult credit markets render such financing difficult to obtain or otherwise less attractive, this may negatively impact the operating performance of our portfolio companies that use debt to fund certain of their operations.
+Added: This may result in a negative impact on the investment returns of our funds.
+Added: In addition, to the extent that conditions in the credit
+Added: markets or tax or other regulatory changes make it difficult or impossible for our investments to refinance or extend maturities on their outstanding debt, either on favorable terms or at all, some of our portfolio companies’ operations may be negatively impacted or our portfolio companies may be unable to repay their debt at maturity or interests when due, and may be forced to sell assets, undergo a recapitalization or seek bankruptcy protection, any of which would also likely impair the value of our funds’ portfolio companies and lead to a decrease in investment income earned by us.
+Added: See “Risks Related to our Company—Adverse economic and market conditions and other events or conditions throughout the world could negatively impact our business in many ways, including by reducing the value or performance of the investments made by our investment funds and reducing the ability of our investment funds to raise capital, any of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.”
Our funds invest in relatively high-risk, illiquid assets, and we may fail to realize any profits from these activities for a considerable period of time or lose some or all of our principal investments.
Many of our investment funds invest in securities that are not publicly traded.
−Removed: In many cases, our investment funds may be prohibited by contract or by applicable securities laws from selling such securities for a period of time.
+Added: In many of those cases, our investment funds may be prohibited by contract or by applicable securities laws from selling such securities for a period of time.
Our investment funds will not be able to sell these securities publicly unless their sale is registered under applicable securities laws, or unless an exemption from such registration is available.
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Even if the securities are publicly traded, large holdings of securities can often be disposed of only over a substantial length of time, exposing the investment returns to risks of downward movement in market prices during the intended disposition period.
−Removed: Moreover, because the investment strategy of many of our funds, particularly our private equity funds, often entails our having representation on our funds’ public portfolio company boards, our funds may be able to effect such sales only during limited trading windows.
−Removed: Additionally, certain provisions of the U.S.
−Removed: federal securities laws (e.g., Exchange Act Section 16) may constrain our investment funds’ ability to effect purchases or sales of publicly traded securities.
+Added: In addition, because the investment strategy of many of our funds, particularly our private equity funds, often entails our having representation on our funds’ public portfolio company boards, our funds may be able to effect such sales only during limited trading windows.
+Added: Moreover, certain provisions of the U.S.
+Added: federal securities laws (e.g., Section 16 of the Exchange Act) may constrain our investment funds’ ability to effect purchases or sales of publicly traded securities.
Accordingly, under certain conditions, our investment funds may be forced to either sell securities at lower prices than they had expected to realize or defer, potentially for a considerable period of time, sales that they had planned to make.
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Contributing capital to these investment funds is subject to significant risks, and we may lose some or all of the principal amount of our investments.
−Removed: The investments of our private equity funds are subject to a number of inherent risks.
−Removed: Our results are highly dependent on our continued ability to generate attractive returns from our investments.
−Removed: Investments made by our private equity funds involve a number of significant risks inherent to private equity investing, including the following:
−Removed: • we advise funds that invest in businesses that operate in a variety of industries that are subject to extensive domestic and foreign regulation, such as the telecommunications industry, the aerospace, defense and government services industry and the healthcare industry (including companies that supply equipment and services to governmental agencies), that may involve greater risk due to rapidly changing market and governmental conditions in those sectors;
−Removed: • significant failures of our portfolio companies to comply with laws and regulations applicable to them may expose us to liabilities, fines or penalties, could affect the ability of our funds to invest in other companies in certain industries in the future and could harm our reputation;
−Removed: • companies in which private equity investments are made may have limited financial resources and may be unable to meet their obligations, which may be accompanied by a deterioration in the value of their equity securities or any collateral or guarantees provided with respect to their debt;
−Removed: • companies in which private equity investments are made are more likely to depend on the management talents and efforts of a small group of persons and, as a result, the death, disability, resignation or termination of one or more of those persons could have a material adverse impact on their business and prospects and the investment made;
−Removed: • companies in which private equity investments are made may be businesses or divisions acquired from larger operating entities which may require a rebuilding or replacement of financial reporting, information technology, back office and other operations;
−Removed: • companies in which private equity investments are made may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;
−Removed: • companies in which private equity investments are made generally have less predictable operating results;
−Removed: • instances of fraud, corruption and other deceptive practices committed by senior management of portfolio companies in which our funds invest may undermine our due diligence efforts with respect to such companies and, upon the discovery of such fraud, negatively affect the valuation of a fund’s investments as well as contribute to overall market volatility that can negatively impact a fund’s investment program;
−Removed: • our funds may make investments that they do not advantageously dispose of prior to the date the applicable fund is dissolved, either by expiration of such fund’s term or otherwise, resulting in a lower than expected return on the investments and, potentially, on the fund itself;
−Removed: • our funds generally establish the capital structure of portfolio companies on the basis of the financial projections based primarily on management judgments and assumptions, and general economic conditions and other factors may cause actual performance to fall short of these financial projections, which could cause a substantial decrease in the value of our equity holdings in the portfolio company and cause our funds’ performance to fall short of our expectations;
−Removed: • under ERISA, a “trade or business” within a “controlled group” can be liable for the ERISA Title IV pension obligations (including withdrawal liability for union multiemployer plans) of any other member of the controlled group.
−Removed: This “controlled group” liability represents one of the few situations in which one entity’s liability can be imposed upon another simply because the entities are united by common ownership, but in order for such joint and several liability to be imposed, two tests must be satisfied:
−Removed: (1) the entity on which such liability is to be imposed must be a “trade or business” and (2) a “controlled group” relationship must exist among such entity and the pension plan sponsor or the contributing employer.
−Removed: While a number of cases have held that managing investments is not a “trade or business” for tax purposes, at least one federal Circuit Court case has concluded that an investment fund could be a “trade or business” for ERISA purposes (and, consequently, could be liable for underfunded pension liabilities of an insolvent portfolio company) based upon a number of factors present in that case, including the fund’s level of involvement in the management of its portfolio companies and the nature of its management fee arrangements.
−Removed: Litigation related to the Circuit Court’s decision suggests that additional factors may be relevant for purposes of determining whether an investment fund could face “controlled group” liability under ERISA, including the structure of the investment, and the nature of the fund’s relationship with other affiliated investors and co-investors in the portfolio company.
−Removed: Moreover, regardless of whether or not an investment fund is determined to be a trade or business for purposes of ERISA, a court might hold that one of the fund’s portfolio companies could become jointly and severally liable for another portfolio company’s unfunded pension liabilities pursuant to the ERISA “controlled group” rules, depending upon the relevant investment structures and ownership interests as noted above;
−Removed: • executive officers, directors and employees of an equity sponsor may be named as defendants in litigation involving a company in which a private equity investment is made or is being made.
−Removed: Our real estate funds are subject to the risks inherent in the ownership and operation of real estate and the construction and development of real estate.
−Removed: Investments in our real estate funds will be subject to the risks inherent in the ownership and operation of real estate and real estate-related businesses and assets.
−Removed: These risks include the following:
−Removed: • those associated with the burdens of ownership of real property;
−Removed: • general and local economic conditions;
−Removed: • changes in supply of and demand for competing properties in an area (as a result, for instance, of overbuilding);
−Removed: • fluctuations in the average occupancy and room rates for hotel and student housing properties;
−Removed: • the financial resources of tenants;
−Removed: • changes in building, environmental, zoning and other laws;
−Removed: • failure to obtain necessary approvals and/or permits;
−Removed: • energy and supply shortages;
−Removed: • casualty or condemnation losses;
−Removed: • various uninsured or uninsurable risks;
−Removed: • natural disasters, including increased physical risks from climate change such as event-driven exposures resulting from the increased severity of extreme weather events and consequences of longer-term shifts in climate patterns, and the effects of climate change on supply and demand;
−Removed: • changes in government regulations (such as rent control);
−Removed: • changes in the way real estate is occupied as a result of pandemics or other unforeseen events;
−Removed: • changes in real property tax rates and operating expenses;
−Removed: • changes in interest rates;
−Removed: • the reduced availability of mortgage funds or other forms of financings, including construction financing, which may render the sale or refinancing of properties difficult or impracticable;
−Removed: • inability to meet debt obligations
−Removed: • negative developments in the economy that depress travel and leasing activity;
−Removed: • environmental liabilities;
−Removed: • contingent liabilities on disposition of assets;
−Removed: • increase in insurance premiums and changes to the insurance market;
−Removed: • unexpected cost overruns and delays in connection with development projects;
−Removed: • terrorist attacks, war and other factors that are beyond our control;
−Removed: • dependence on local operating partners.
−Removed: Our real estate funds’ portfolio investments are subject to various risks that cause fluctuations in occupancy, rental rates, operating income and expenses or that render the sale or financing of the funds’ portfolio investment properties difficult or unattractive, which risks have been exacerbated by the COVID-19 pandemic.
−Removed: For example, following the termination or expiration of a tenant’s lease, there could be a period of time before a funds’ portfolio investment will begin receiving rental payments under a replacement lease.
−Removed: During that period, the portfolio investments (and indirectly, the funds) will continue to bear fixed expenses such as interest, real estate taxes, maintenance and other operating expenses.
−Removed: In addition, declining economic conditions could impair the portfolio investments’ ability to attract replacement tenants and achieve rental rates equal to or greater than the rents paid under previous leases.
−Removed: Increased competition for tenants would require the portfolio investments to make capital improvements to properties that we would not otherwise have planned.
−Removed: Any unbudgeted capital improvements that a fund undertakes may divert cash that would otherwise be available for distribution to investors.
−Removed: To the extent that the portfolio investments are unable to renew leases or re-let spaces as leases expire, decreased cash flow from tenants will result, which would adversely impact the relevant fund’s returns.
−Removed: Our real estate funds may also make investments in residential real estate projects and/or otherwise participate in financing opportunities relating to residential real estate assets or portfolios thereof from time to time, which may be more highly susceptible to adverse changes in prevailing economic and/or market conditions and present additional risks relative to the ownership and operation of commercial real estate assets.
−Removed: With regards to potential environmental liabilities, ownership of real assets in our investment funds or vehicles may increase our risk of liability under laws that impose, regardless of fault, joint and several liability for the cost of remediating contamination and compensation for damages.
−Removed: In addition, changes in environmental laws or regulations or the environmental condition of an investment may create liabilities that did not exist at the time of acquisition.
−Removed: For example, the current Administration announced several initiatives and have proposed new regulations focused on the climate crisis which could impact our real estate assets in various ways that were not considered at the time of investment.
−Removed: Even in cases where we are indemnified by a seller against liabilities arising out of violations of environmental laws and regulations, there can be no assurance as to the financial viability of the seller to satisfy such indemnities or our ability to achieve enforcement of such indemnities.
−Removed: In addition to real property assets, our real estate funds may also invest in real estate related operating companies such as logistics hubs and data centers.
−Removed: These investments are similar to the portfolio investments made by our buyout and growth funds and are subject to similar risks and uncertainties as apply to those operating companies.
−Removed: See “—The investments of our private equity funds are subject to a number of inherent risks.”
−Removed: Real estate markets may experience sharp increases in capitalization rates and declines in value as a result of overall economic decline and the limited availability of financing and the value of certain investments in our real estate funds may decline significantly.
−Removed: In addition, if our real estate funds acquire direct or indirect interests in undeveloped land or underdeveloped real property, which may often be non-income producing, they will be subject to the risks normally associated with such assets and development activities, including risks relating to the availability and timely receipt of zoning and other regulatory or environmental approvals, the cost and timely completion of construction (including risks beyond the control of our fund, such as weather or labor conditions or material shortages) and the availability of both construction and permanent financing on favorable terms.
−Removed: Additionally, our real estate funds’ properties are often managed by a third party, which makes us dependent upon such third parties and subjects us to risks associated with the actions of such third parties.
−Removed: Any of these factors may cause the value of the investments in our real estate funds to decline, which may have a material impact on our results of operations.
−Removed: Additionally, lenders in commercial real estate financing have been requiring a non-recourse carveout guarantee, which typically provides that the lender can recover losses from guarantors for certain bad acts, such as fraud or intentional misrepresentation, intentional waste, willful misconduct, criminal acts, misappropriation of funds, voluntary incurrence of prohibited debt and environmental losses sustained by lender.
−Removed: For our acquisitions, non-recourse carveout guarantees may be extended by our funds.
−Removed: We expect that commercial real estate financing arrangements generally will increasingly continue to
−Removed: require non-recourse carveout guarantees and, in the event that such a guarantee is called, a fund’s or our assets could be negatively impacted and we or our funds may be subject to liability.
−Removed: The acquisition, ownership and disposition of real properties carry certain specific litigation risks.
−Removed: Litigation may be commenced with respect to a property acquired in relation to activities that took place prior to the acquisition of such property.
−Removed: In addition, at the time of disposition, other potential buyers may bring claims related to the asset or for due diligence expenses or other damages.
−Removed: After the sale of a real estate asset, buyers may later sue our funds or us for losses associated with latent defects or other problems not uncovered in due diligence.
−Removed: Litigation can arise for events or circumstance that occur or are alleged to occur during the ownership period.
−Removed: We or our funds may also be subject to certain risks associated with investments in particular real estate-related assets.
−Removed: Real estate investment trusts (“REITs”) may be affected by changes in the value of their underlying properties and defaults by borrowers or tenants, and changes in tax laws or by a failure to qualify for tax-free pass through income could impair a REIT’s ability to generate cash flows to make distributions.
−Removed: Qualification as a REIT also depends on a REITs ability to meet various requirements imposed by the U.S.
−Removed: Internal Revenue Code of 1986, as amended (the “Code”), which relate to organizational structure, annual distributions, diversity of stock ownership, and certain restrictions with regard to the nature of their assets and the sources of their income.
−Removed: If a REIT fails to qualify as a REIT in any taxable year, it will be subject to U.S.
−Removed: federal income tax at regular corporate rates, and applicable state and local taxes, which would reduce the amount of cash available for distribution to its stockholders.
−Removed: Investments in real estate debt investments may be unsecured and/or subordinated to a substantial amount of indebtedness and may not be protected by financial covenants.
−Removed: Non-performing real estate loans may require a substantial amount of workout negotiations and/or modification, which may entail, among other things, a substantial reduction in the interest rate and a substantial write-down of the principal of such loan.
−Removed: Investments in commercial mortgage loans are subject to risks of delinquency, foreclosure and loss of principal.
−Removed: In the event of any default under a mortgage loan held directly by us or one of our funds, we or our fund will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the loan.
−Removed: Investments in distressed assets or businesses may have little or no near-term cash flow, involve a high degree of risk and, if subject to bankruptcy or insolvency, could be subordinated or disallowed.
−Removed: We often pursue investment opportunities that involve business, regulatory, legal or other complexities.
−Removed: As an element of our investment style, we may pursue unusually complex investment opportunities.
−Removed: This can often take the form of substantial business, regulatory, tax, or legal complexity that would deter other asset managers.
−Removed: Our tolerance for complexity presents risks, as such transactions can be more difficult, expensive and time-consuming to finance and execute;
−Removed: it can be more difficult to manage or realize value from the assets acquired in such transactions;
−Removed: and such transactions sometimes entail a higher level of regulatory scrutiny or a greater risk of contingent liabilities.
−Removed: The complexity of these transactions could also make it more difficult to find a suitable buyer.
−Removed: Any of these risks could harm the performance of our funds or strategic investments.
Our investment funds make investments in companies that we do not control.
9 unchanged sentences
If any of the foregoing were to occur, the value of investments by our funds could decrease and our financial condition, results of operations and cash flow could suffer as a result.
−Removed: Our investment funds may invest in assets denominated in currencies which differ from the currency in which the fund is denominated.
−Removed: When our investment funds invest in assets denominated in currencies that differ from the functional currency of the relevant fund, fluctuations in currency rates could impact the performance of the investment funds.
+Added: Our investment funds may invest in assets denominated in currencies that differ from the currency in which the fund is denominated.
+Added: When our investment funds invest in assets denominated in currencies that differ from the functional currency of the relevant fund, fluctuations in currency rates could impact the performance of such investment funds.
For example, Carlyle sponsors U.S.
1 unchanged sentence
In the event that the U.S.
−Removed: dollar appreciates, the market value of the investments in these funds will decline even if the underlying investments perform well in local currency.
+Added: dollar appreciates, the market value of the investments in these
+Added: funds will decline even if the underlying investments perform well in local currency.
In addition, our buyout and growth funds in Europe are Euro-denominated and may have investments denominated in U.S.
3 unchanged sentences
If we engage in hedging transactions, we may be exposed to additional risks associated with such transactions.
−Removed: See “—Risk management activities may adversely affect the return on our and our funds’ investments,” and “—Risks Related to Our Company—Financial regulations and changes thereto in the United States could adversely affect our business and the possibility of increased regulatory focus could result in additional burdens and expenses on our business.”
+Added: See “Risks Related to Our Business Operations—Risks Related to the Assets We Manage—Risk management activities may adversely affect the return on our and our funds’ investments” and “Risks Related to Regulation and Litigation—Financial regulations and changes thereto in the United States could adversely affect our business and the possibility of increased regulatory focus could result in additional burdens and expenses on our business.”
Our funds make investments in companies that are based outside of the United States, which may expose us to additional risks not typically associated with investing in companies that are based in the United States.
Many of our investment funds generally invest a significant portion of their assets in the equity, debt, loans or other securities of issuers that are headquartered outside of the United States, such as China, India, Indonesia and Latin America.
−Removed: A substantial amount of these foreign investments consist of investments made by our carry funds.
+Added: A substantial amount of these foreign investments consists of investments made by our carry funds.
For example, as of December 31, 2022, approximately 36% of the cumulative capital invested by our Global Private Equity and Global Credit carry funds was attributable to foreign investments.
19 unchanged sentences
• less developed bankruptcy, limited liability company, corporate, partnership and other laws (which may have the effect of disregarding or otherwise circumventing the limited liability structures potentially causing the actions or liabilities of one fund or a portfolio company to adversely impact us or an unrelated fund or portfolio company);
−Removed: • difficulty in enforcing contractual obligations;
+Added: • difficulty in enforcing contractual obligations (including, for example, purchase agreements and insurance policies);
• less stringent requirements relating to fiduciary duties;
2 unchanged sentences
For example, the imposition of a new national security law has increased overall uncertainty about risks associated with international trade with Hong Kong, the potential for increased taxation on Hong Kong-related transactions, and new regulatory restrictions and data protection concerns for businesses operated in Hong Kong (including our Hong Kong operations).
−Removed: In April 2020, the Government of India issued Press Note 3, which requires prior government approval of all foreign direct investment by non-resident entities located in, or having beneficial owners in, countries that share a land border with India.
−Removed: While further clarity is expected from the Government, the application of these rules may inhibit our funds’ ability to consummate investments in India and may require partial or full exclusion of any fund investor from countries bordering India from such investments.
+Added: Moreover, in April 2020, the Government of India issued Press Note 3, which requires prior government approval of all foreign direct investment by non-resident entities located in, or having beneficial owners in, countries that share a land border with India.
+Added: While further clarity is expected from the Government of India, the application of these rules may inhibit our funds’ ability to consummate investments in India and may require partial or full exclusion of any fund investor from countries bordering India from such investments.
Uncertainty resulting from the application of these rules may also lead to higher amounts of, or longer durations of, borrowings by the investment funds pending the receipt of approvals, and we or our funds being subject to fines if different regulators apply and enforce the rules differently.
−Removed: We operate in numerous national and subnational jurisdictions throughout the world and are subject to complex taxation requirements that could result in the imposition of taxes in excess of any amounts that are reserved
−Removed: as a cash or financial statement matter for such purposes.
+Added: We operate in numerous national and subnational jurisdictions throughout the world and are subject to complex taxation requirements that could result in the imposition of taxes in excess of any amounts that are reserved as a cash or financial statement matter for such purposes.
In addition, the portfolio companies of our investment funds are typically subject to taxation in the jurisdictions in which they operate.
6 unchanged sentences
Among the factors that may affect currency values are trade balances, levels of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments.
−Removed: Additionally, the increase in the value of the dollar makes it more difficult for companies outside of the United States that depend on non-dollar revenues to repay or refinance their dollar liabilities and a stronger dollar also reduces the domestic value of the foreign sales and earnings of U.S.-based businesses.
+Added: In addition, the increase in the value of the dollar makes it more difficult for companies outside of the United States that depend on non-dollar revenues to repay or refinance their dollar liabilities and a stronger dollar also reduces the domestic value of the foreign sales and earnings of U.S.-based businesses.
Regulatory action to implement controls on foreign exchange and outbound remittances of currency could also impact the dollar value of investments proceeds, interest and dividends received by our investment funds, gains and losses realized on the sale of investments and the timing and amount of distributions, if any, made to us.
−Removed: For example certain Asian countries, including China have implemented stricter controls on foreign exchange and outbound remittances, and several governmental entities such as, The Peoples Bank of China (PBOC), the State Administration of Foreign Exchange (SAFE), the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) have instituted additional reporting, review and verification steps around control outbound payments on capital account items.
−Removed: Furthermore, in certain cases, our fund management fees are denominated in foreign currencies.
−Removed: With respect to those funds, we are subject to the risk that the value of a particular currency will change in relation to one or more other currencies in which the fund has incurred expenses or has made investments.
−Removed: We may need to pay “giveback” obligations if and when they are triggered under the governing agreements with our investors.
−Removed: If, at the end of any of the life of our Global Private Equity and Global Credit carry funds (or earlier with respect to certain of our funds), the carry fund has not achieved investment returns that (in most cases) exceed the preferred return threshold or (in almost all cases) the general partner receives net profits over the life of the fund in excess of its allocable share under the applicable partnership agreement, we will be obligated to repay an amount equal to the extent to which carried interest that was previously distributed to us exceeds the amounts to which we are ultimately entitled.
−Removed: This repayment obligation is known as a “giveback” obligation.
−Removed: As of December 31, 2021, we had accrued a giveback obligation of $30.2 million, representing the giveback obligation that would need to be paid by the firm if the carry funds were liquidated at their current fair values at that date, and of which approximately $16.1 million is attributable to the Company.
−Removed: The remaining
−Removed: obligations are related to amounts previously distributed to our senior Carlyle professionals, the majority of which relates to the accrued giveback obligation from the Legacy Energy Funds.
−Removed: When payment of a giveback obligation is anticipated (or “realized”), the portion of this liability that is expected to be borne by the common stockholders (i.e., the amount not expected to be funded by Carlyle professionals) has the effect of reducing our Distributable Earnings.
−Removed: Any remaining giveback obligation required to be funded on behalf of our funds would generally be due upon the liquidation of the remaining assets from the funds.
−Removed: If, as of December 31, 2021, all of the investments held by our carry funds were deemed worthless, the amount of realized and distributed carried interest subject to potential giveback would have been $1.5 billion, on an after-tax basis where applicable.
−Removed: As of December 31, 2021, we have realized $227.9 million in aggregate giveback obligations since inception, which were funded primarily through collection of employee receivables related to giveback obligations and from Carlyle professionals and other non-controlling interests for their portion of the obligation.
−Removed: This amount is net of $44.7 million related to our second Asia buyout fund accruing carry again after payment of a full after-tax clawback in 2016.
−Removed: Of the $227.9 million in aggregate giveback obligations realized from inception to December 31, 2021, $62.0 million was attributable to Carlyle.
−Removed: “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Investment Income.”
−Removed: Although a giveback obligation is specific to each person who received a distribution, and not a joint obligation, the governing agreements of our funds generally provide that to the extent a recipient does not fund his or her respective share, then we may have to fund such additional amounts beyond the amount of carried interest we retained, although we generally will retain the right to pursue any remedies that we have under such governing agreements against those carried interest recipients who fail to fund their obligations.
−Removed: As of December 31, 2021, approximately $14.1 million of our $30.2 million accrued giveback obligation is attributable to various current and former senior Carlyle professionals.
−Removed: We have historically withheld a portion of the cash from carried interest distributions to individual senior Carlyle professionals and other employees as security for their potential giveback obligations.
−Removed: We may need to use or reserve cash to repay such giveback obligations instead of using the cash for other purposes.
−Removed: “Business—Structure and Operation of Our Investment Funds—Incentive Arrangements / Fee Structure” and Part II.
−Removed: “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations—Contingent Obligations (Giveback)” and Notes 2 and 8 to the consolidated financial statements included in this Annual Report on Form 10-K.
+Added: For example, certain Asian countries, including China, have implemented stricter controls on foreign exchange and outbound remittances, and several governmental entities such as the People’s Bank of China (PBOC), the State Administration of Foreign Exchange (SAFE), the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) have instituted additional
+Added: reporting, review and verification steps around control of outbound payments on capital account items.
+Added: Moreover, in certain cases, our fund management fees are denominated in foreign currencies.
+Added: With respect to those funds, we are subject to risk that the value of a particular currency will change in relation to one or more other currencies in which the fund has incurred expenses or has made investments.
Our investment funds often make preferred and common equity investments that rank junior to preferred equity and debt in a company’s capital structure.
1 unchanged sentence
By their terms, such instruments may provide that their holders are entitled to receive payments of dividends, interest or principal on or before the dates on which payments are to be made in respect of our investment.
−Removed: Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a company in which an investment is made, holders of securities ranking senior to our investment would typically be entitled to receive payment in full before distributions could be made in respect of our investment.
+Added: In addition, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a company in which an investment is made, holders of securities ranking senior to our investment would typically be entitled to receive payment in full before distributions could be made in respect of our investment.
After repaying senior security holders, the company may not have any remaining assets to use for repaying amounts owed in respect of our investment.
To the extent that any assets remain, holders of claims that rank equally with our investment would be entitled to share on an equal and ratable basis in distributions that are made out of those assets.
−Removed: Also, during periods of financial distress or following an insolvency, the ability of our funds to influence a company’s affairs and to take actions to protect their investments may be substantially less than that of the senior creditors.
−Removed: Third-party investors in substantially all of our carry funds have the right to remove the general partner of the fund for cause, to accelerate the liquidation date of the investment fund without cause by a simple majority vote and to terminate the investment period under certain circumstances and investors in certain of the investment funds we advise may redeem their investments.
−Removed: These events would lead to a decrease in our revenues, which could be substantial.
−Removed: The governing agreements of almost all of our carry funds provide that, subject to certain conditions, third-party investors in those funds have the right to remove the general partner of the fund for cause or to accelerate the liquidation date of the investment fund without cause by a simple majority vote.
−Removed: In addition, our investment vehicles that are structured as “funds of one”, or separately managed accounts, have a single investor or a few affiliated investors that typically have the right to terminate the investment period or cause a dissolution of the vehicle under certain circumstances.
−Removed: These actions would result in a reduction in management fees we would earn from such investment funds, vehicles, or accounts, and could result in a significant reduction in the expected amounts of total carried interest and incentive fees from those investment funds, vehicles, or accounts.
−Removed: Carried interest and incentive fees could be significantly reduced as a result of our inability to maximize the value of investments by an investment fund during the liquidation process or in the event of the triggering of a “giveback” obligation.
−Removed: Finally, the applicable investment funds, vehicles, or accounts would cease to exist after completion of liquidation and winding-up.
−Removed: In addition, the governing agreements of certain of our investment funds provide that in the event certain “key persons” in our investment funds do not meet specified time commitments with regard to managing the fund (for example, certain of the investment professionals serving on the investment committee or advising the fund), then investors in certain funds have the right to vote to terminate the investment period by a simple majority vote in accordance with specified procedures, accelerate the withdrawal of their capital on an investor-by-investor basis, or the fund’s investment period will automatically terminate and the vote of a simple majority of investors is required to restart it.
−Removed: While we believe that our investment professionals have appropriate incentives to remain in their respective positions, based on equity ownership, profit participation and other contractual provisions, we are not able to guarantee the ongoing participation of the management team members in respect of our funds.
−Removed: In addition to having a significant negative impact on our revenue, earnings and cash flow, the occurrence of a key person event with respect to any of our investment funds would likely result in significant reputational damage to us and could negatively impact our future fundraising efforts.
−Removed: The AlpInvest funds generally provide for suspension of the investment period if there is a key person event, the right of a supermajority of investors to remove the general partner with cause and, in some cases, without cause, but generally have not provided for liquidation without cause.
−Removed: Where AlpInvest funds include “key person” provisions, they are focused on specific existing AlpInvest personnel as applicable.
−Removed: In addition, because our investment funds generally have an adviser that is registered under the Advisers Act, the management agreements of each of our investment funds would be terminated upon an “assignment” to a third-party of these agreements without appropriate investor consent, which assignment may be deemed to occur in the event these advisers were to experience a change of control.
−Removed: We cannot be certain that consents required to assignments of our investment management agreements will be obtained if a change of control occurs.
−Removed: “Assignment” of these agreements without investor consent could cause us to lose the fees we earn from such investment funds.
−Removed: Third-party investors in our investment funds with commitment-based structures may not satisfy their contractual obligation to fund capital calls when requested by us, which could adversely affect a fund’s operations and performance.
−Removed: Investors in our carry funds make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods.
−Removed: We depend on investors fulfilling their commitments when we call capital from them in order for those funds to consummate investments and otherwise pay their obligations (for example, management fees) when due.
−Removed: Any investor that did not fund a capital call would generally be subject to several possible penalties, including having a significant amount of its existing investment forfeited in that fund.
−Removed: However, the impact of the penalty is directly correlated to the amount of capital previously invested by the investor in the fund and if an investor has invested little or no capital, for instance early in the life of the fund, then the forfeiture penalty may not be as meaningful.
−Removed: Investors may also negotiate for lesser or reduced penalties at the outset of the fund, thereby inhibiting our ability to enforce the funding of a capital call.
−Removed: Our use of subscription lines of credit to purchase an investment prior to calling capital from fund investors could increase the prevalence of defaulting limited partners.
−Removed: Should the value of an investment funded through a fund line-of-credit decline, especially early in a fund’s life-cycle where minimal capital has been contributed by the fund’s investors, a limited partner may decide not to fund its commitment.
−Removed: In addition, third-party investors in private equity, real estate assets and venture capital funds typically use distributions from prior investments to meet future capital calls.
−Removed: In cases where valuations of investors’ existing investments fall and the pace of distributions slows, investors may be unable to make new commitments to third-party managed investment funds such as those advised by us.
−Removed: If investors were to fail to satisfy a significant amount of capital calls for any particular fund or funds, the operation and performance of those funds could be materially and adversely affected.
−Removed: In addition, our failure to comply with applicable pay-to-play laws, regulations and/or policies adopted by a number of states and municipal pension funds as well as the New York Attorney General’s Public Pension Fund Reform Code of Conduct, may, in certain instances, excuse a public pension fund investor from its obligation to make further capital contributions relating to all or any part of an investment or allow it to withdraw from the fund.
−Removed: If a public pension fund investor were to seek to be excused from funding a significant amount of capital calls for any particular fund or funds, the operation and performance of those funds could be materially and adversely affected.
−Removed: Our failure to deal appropriately with conflicts of interest in our investment business could damage our reputation and adversely affect our businesses.
−Removed: As we have expanded and as we continue to expand the number and scope of our businesses, we increasingly confront potential conflicts of interest relating to our funds’ investment activities.
−Removed: For example, a decision to acquire material, non-public information about a company while pursuing an investment opportunity for a particular fund may give rise to a potential conflict of interest that results in our having to restrict the ability of other funds to take any action.
−Removed: Certain of our funds, managed accounts or investment vehicles may have overlapping investment objectives, including co-investment funds and funds that have different fee structures, and potential conflicts may arise with respect to our decisions regarding how to allocate investment opportunities among those funds, managed accounts or investors.
−Removed: Different funds may invest in a single company, for example where the fund that made an initial investment no longer has capital available to invest or a follow-on opportunity
−Removed: We may also cause different funds that we manage to purchase different classes of debt or securities in the same portfolio company.
−Removed: For example, one of our funds could acquire a debt security or bank loan issued by the same company in which one of our buyout funds owns common equity securities or several of our funds could be invested in different tranches of a company’s debt.
−Removed: A direct conflict of interest could arise between and among the debt holders and the equity holders if such a portfolio company was to develop insolvency concerns, and that conflict would have to be carefully managed by us.
−Removed: It is also possible that in the event the company goes through a bankruptcy proceeding, the interests of the fund holding the debt securities or loans may be subordinated, recharacterized or otherwise adversely affected by virtue of the involvement and actions of the fund holding the equity in the portfolio company.
−Removed: In such a case, the debt security or loan could be converted into equity and the prospects of repayment greatly diminished.
−Removed: Conflicts of interest may also exist in the valuation of our investments and regarding decisions about the allocation of specific investment opportunities among us and our funds and the allocation of fees and costs among us, our investment funds and their portfolio companies and conflicts could also arise in respect of the ultimate disposition of such investments.
−Removed: Due to changes in the tax treatment of carried interest under the TCJA and/or future legislation, conflicts of interest may arise with investors in certain of our funds in connection with the general partner’s decisions with respect to the sequence and timing of disposals of investments in such funds.
−Removed: To the extent we fail to appropriately deal with any such conflicts, it could negatively impact our reputation and ability to raise additional funds and the willingness of counterparties to do business with us or result in regulatory liability or potential litigation against us.
−Removed: Our CLO business and investment into CLOs involves certain risks.
−Removed: CLOs may present risks similar to other types of debt obligations and, in fact, such risks may be of greater significance in the case of CLOs.
−Removed: For example, investments in structured vehicles, including equity and junior debt securities issued by CLOs, involve risks, including credit risk and market risk.
−Removed: Changes in interest rates and credit quality may cause short-term price fluctuations or longer term impairment.
−Removed: In addition to the general risks associated with investing in debt securities, CLO securities carry additional risks, including, but not limited to the possibility that distributions from collateral assets will be inadequate to make interest or other payments and the quality of the collateral may decline in value, default or be downgraded.
−Removed: Additionally, changes in the collateral held by a CLO may cause payments on the instruments we hold to be reduced, either temporarily or permanently.
−Removed: Non-payment could result in a reduction of our income and revenues.
−Removed: CLOs are less liquid than other types of securities and may be more volatile than the individual assets that make-up the CLOs.
−Removed: In addition, CLOs and other structured finance securities may be subject to prepayment risk.
−Removed: Further, the performance of a CLO or other structured finance security is generally affected by a variety of factors, including the security’s priority in the capital structure of the issuer thereof, the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans or other assets that are being securitized, remoteness of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral and the capability of the servicer of the securitized assets.
−Removed: There are also the risks that the trustee of a CLO does not properly carry out its duties to the CLO, potentially resulting in loss to the CLO.
−Removed: In addition, the complex structure of the security may produce unexpected investment results, especially during times of market stress or volatility.
−Removed: Investments in structured finance securities may also be subject to liquidity risk.
−Removed: During 2021, we earned approximately $122 million in management fees from our CLOs, prior to the effects of consolidation, of which approximately 67% are in the form of subordinated fees.
−Removed: The subordinated fees we generate from our CLO business could be negatively impacted if one or more CLOs fail certain tests related to overcollateralization (including the interest diversion test) set forth in their respective indentures.
−Removed: In the event that worsening credit conditions and/or a deterioration in loan performance generally leads to defaults or downgrades of the CLOs’ underlying collateral obligations, one or more CLOs could fail one or more overcollateralization tests and/or interest diversion tests.
−Removed: These risks are correlated, as when an underlying collateral obligation defaults or is downgraded below a certain threshold, such collateral obligation is then carried below par for the purpose of overcollateralization and interest diversion testing, making a failure of any such test more likely to occur.
−Removed: Any such failure would result in funds otherwise available to pay the management fees we earn on such investment vehicle to instead be used to either (x) pay down the principal on the securities issued by such vehicle in an amount necessary to cause such tests to pass or (y) purchase sufficient collateral in an amount necessary to cause such CLO to pass such tests.
−Removed: If either of these scenarios occurred, there is the potential that the remaining funds would be insufficient to pay expected management fees on any such CLO, which would result in either a temporary deferral or permanent loss of such management fees.
−Removed: For example, in the early stages of the COVID-19 pandemic, ratings agencies downgraded certain underlying collateral obligations in our CLOs.
−Removed: As a result, we did not recognize approximately $7.0 million of subordinated management fees from our CLOs in the first and second quarters of 2020, but recognized such amounts in the third quarter of 2020 due to improvement in the underlying CLO portfolios.
−Removed: Underwriting, syndicating and securities placement activities expose us to risks.
−Removed: TCG Capital Markets may act as an underwriter, syndicator or placement agent for security offerings and TCG Senior Funding L.L.C.
−Removed: may act as an underwriter, originator, syndicator or placement agent in loan originations.
−Removed: If we are unable to
−Removed: sell securities or place loans at the anticipated price levels where we act as an underwriter, syndicator or placement agent, we may incur losses and suffer reputational harm.
−Removed: As an underwriter, syndicator or placement agent, we also may be subject to potential liability for material misstatements or omissions in prospectuses and other offering documents relating to offerings we underwrite, syndicate or place.
−Removed: In certain situations, we may have liabilities arising from transactions in which our investment fund may participate as a purchase or a seller of securities, which could constitute a conflict of interest or subject us to damages or reputational harm.
−Removed: Risk management activities may adversely affect the return on our and our funds’ investments.
−Removed: When managing our exposure to market risks, we may (on our own behalf or on behalf of our funds) from time to time use forward contracts, options, swaps, caps, collars and floors or pursue other strategies or use other forms of derivative instruments to limit our exposure to changes in the relative values of investments that may result from market developments, including changes in prevailing interest rates, currency exchange rates and commodity prices.
−Removed: The scope of risk management activities undertaken by us varies based on the level and volatility of interest rates, prevailing foreign currency exchange rates, the types of investments that are made and other changing market conditions.
−Removed: The use of hedging transactions and other derivative instruments to reduce the effects of a decline in the value of a position does not eliminate the possibility of fluctuations in the value of the position or prevent losses if the value of the position declines.
−Removed: Such transactions may also limit the opportunity for gain if the value of a position increases.
−Removed: Moreover, it may not be possible to limit the exposure to a market development that is so generally anticipated that a hedging or other derivative transaction cannot be entered into at an acceptable price.
−Removed: The success of any hedging or other derivative transaction generally will depend on our ability to correctly predict market changes, the degree of correlation between price movements of a derivative instrument and the position being hedged, the creditworthiness of the counterparty and other factors.
−Removed: As a result, while we may enter into such a transaction in order to reduce our exposure to market risks, the transaction may result in poorer overall firm or investment performance than if it had not been executed.
−Removed: Such transactions may also limit the opportunity for gain if the value of a hedged position increases.
−Removed: While such hedging arrangements may reduce certain risks, such arrangements themselves may entail certain other risks.
−Removed: These arrangements may require the posting of cash collateral at a time when a fund has insufficient cash or illiquid assets such that the posting of the cash is either impossible or requires the sale of assets at prices that do not reflect their underlying value.
−Removed: Moreover, these hedging arrangements may generate significant transaction costs, including potential tax costs, which may reduce the returns generated by the firm or a fund.
−Removed: See “—Risks Related to Our Company—Changing regulations regarding derivatives and commodity interest transactions could adversely impact various aspects of our business.”
+Added: Moreover, during periods of financial distress or following an insolvency, the ability of our funds to influence a company’s affairs and to take actions to protect their investments may be substantially less than that of the senior creditors.
Certain of our fund investments may be concentrated in particular asset types or geographic regions, which could exacerbate any negative performance of those funds to the extent those concentrated investments perform poorly.
The governing agreements of our investment funds contain only limited investment restrictions and only limited requirements as to diversification of fund investments, either by geographic region or asset type.
−Removed: For example, we advise funds that invest predominantly in the United States, Europe, Asia and Japan;
−Removed: and we advise funds that invest in a single industry sector, such as financial services, aviation, and power.
−Removed: During periods of difficult market conditions, slowdowns, or increased borrower defaults in these sectors or geographic regions, decreased revenue, difficulty in obtaining access to financing and increased funding costs experienced by our funds may be exacerbated by this concentration of investments, which would result in lower investment returns for our funds.
−Removed: Such concentration may increase the risk that events affecting a specific geographic region or asset type will have an adverse or disparate impact on such investment funds, as compared to funds that invest more broadly.
+Added: For example, we advise funds that invest predominantly in the United States, Europe, Asia and Japan, and we advise funds that invest in a single industry sector, such as financial services, aviation, and power.
+Added: During periods of difficult market conditions, slowdowns, or increased borrower defaults in those sectors or geographic regions, decreased revenue, difficulty in obtaining access to financing and increased funding costs experienced by our funds may be exacerbated by this concentration of investments, which could result in lower investment returns for our funds.
+Added: Such concentration may increase the risk that events affecting a specific geographic region or asset type could have an adverse or disparate impact on such investment funds, as compared to funds that invest more broadly.
Idiosyncratic factors impacting specific companies or securities can materially affect fund performance depending on the size of the position.
−Removed: Our energy business is involved in oil and gas investments (i.e, exploration, production, storage, transportation, logistics, refining, marketing, trading, petrochemicals, energy services and other opportunistic investments), which involves a high degree of risk.
−Removed: Our energy teams focus on investments in businesses involved in oil and gas production, development and exploration, which can be a speculative business involving a high degree of risk, including:
−Removed: • the use of new technologies;
−Removed: • reliance on estimates of oil and gas reserves in the evaluation of available geological, geophysical, engineering and economic data for each reservoir;
−Removed: • encountering unexpected formations or pressures, premature declines of reservoirs, blow-outs, equipment failures and other accidents in completing wells and otherwise, cratering, sour gas releases, uncontrollable flows of oil, natural gas or well fluids, adverse weather conditions, pollution, fires, spills and other environmental risks;
−Removed: • the volatility of oil and natural gas prices and its impact on the demand for oil and gas products and services;
−Removed: • potential contributions to anthropogenic climate change.
−Removed: Oil, gas and product prices are subject to international supply and demand dynamics, and, as a consequence, related margins can be volatile.
−Removed: In 2020, demand was negatively affected by the ongoing COVID-19 pandemic, which triggered unprecedented global and local travel restrictions as well as regional and nationwide quarantines;
−Removed: this continues today.
−Removed: At the same time, supply was affected by the inability of the members of the Organization of Petroleum Exporting Countries (“OPEC”) to agree to crude production curtailments in the first half of 2020.
−Removed: The resultant supply surplus triggered accumulation of substantial inventories of crude oil and refined products.
−Removed: Together, these phenomena resulted in a large drop in crude oil prices, lower gas prices, and lower refining margins.
−Removed: In 2021, however, oil and gas prices rebounded sharply and rapidly, as stronger-than-expected demand outpaced sluggish supply;
−Removed: European consumers and businesses, in particular, face energy supply shortages and high prices heading into 2022.
−Removed: The European energy situation could further deteriorate in the near- and medium-term if events between Russia, Ukraine and NATO continue to escalate.
−Removed: In general, political developments, see-sawing supply-demand dynamics, technological change, global macroeconomic conditions, public health risks and changes in the influence of OPEC may continue to impact commodity prices going forward and the financial performance of some of our investments.
−Removed: Our investments that are exposed to energy prices, either as consumers or producers of energy, and their financial performance has been, and is likely to continue to be, affected by the continued volatility in energy prices.
−Removed: To the extent that current conditions persist or worsen, there may be adverse impacts on the financial performance of the affected businesses, on the availability of financing or credit to them as well as their asset prices and valuations.
−Removed: Oil prices tend to experience significant volatility in response to macroeconomic trends, trade developments, geopolitical events, and data on inventories, global demand, future supply, and U.S.
−Removed: dollar strength.
−Removed: Oil’s strong performance in 2021, ending the year 14% above 2019 levels, is largely attributable to increased demand and persistent global supply discipline.
−Removed: Prices for oil and natural gas are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for oil and natural gas as well as numerous additional factors such as market uncertainty, speculation, the level of consumer product demand, the refining capacity of oil purchasers, weather conditions, domestic and non-U.S.
−Removed: governmental regulations, appreciation or depreciation of the U.S.
−Removed: dollar, the price and availability of alternative fuels, political conditions in the Middle East, Africa, and Eastern Europe, actions of the OPEC, the non-U.S.
−Removed: supply of oil and natural gas, U.S.
−Removed: and global inventories, the price of non-U.S.
−Removed: imports and overall economic conditions.
−Removed: In addition, changes in commodity prices can vary widely from one location to the next depending upon the characteristics of the production and the availability of gathering, transportation, processing and storage facilities used to transport the oil and gas to markets.
−Removed: In the event that oil prices decline sharply in the future, or fail to sustain upward price momentum, it is possible our portfolio could be adversely impacted.
−Removed: The current Administration has made climate change a key focus of its international and domestic policy agenda.
−Removed: It announced a moratorium on new leases on federal lands as well as an executive order aimed at aligning financial flows with its climate policy aimed at lowering greenhouse gas emissions.
−Removed: The executive order, “Tackling Climate Crisis at Home and Abroad”, issued in January 2021, includes several policy changes to address climate issues.
−Removed: The goal to conserve 30% of federal lands and waters by 2030 could pose tangential future risks to the operations and profitability of our portfolio companies in certain industries if they result in higher energy or other prices.
−Removed: In addition, U.S.
−Removed: regulatory authorities are increasingly focused on ESG-related practices.
−Removed: For example, the methodology used by ESG funds for determining socially responsible investments has been a focus area of the SEC, and the current Administration is generally focused on ESG matters.
−Removed: Climate and environmental impact have also been a focus area of the SEC, and the SEC is expected to propose new rules in this area in the near term.
−Removed: Further, changing customer or community perceptions related to climate considerations may have a negative impact on our portfolio companies and/or our ability to attract investors in these areas and may adversely affect our reputation.
−Removed: In addition, technological improvements or innovations that support the transition to a lower-carbon, energy-efficient economic system may increase competition or make it more difficult to attract capital to our energy business.
−Removed: In January 2021, the current Administration issued an executive order, “Ensuring the Future Is Made in All of America by All of America’s Workers” which has the potential to impact federal contractors and certain grant and loan recipients and their contractors.
−Removed: While the only immediate impact of the order is the creation of a “Made in America” Office within the Office of Management and Budget (OMB) to review federal agency waiver requests, the longer term impact of potential changes to the Federal Acquisition Regulation (FAR) and statutory exemptions for commercial item information technology and trade agreements and the change in waiver procedures requirements for certain grant and loan programs could impact certain investments.
Certain of our investment funds may invest in securities of companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings.
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Investments in securities and private claims of troubled companies made in connection with an attempt to influence a restructuring proposal or plan of reorganization in a bankruptcy case may also involve substantial litigation, which has the potential to adversely impact us or unrelated funds or portfolio companies.
−Removed: Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies, there is a potential risk of loss by a fund of its entire investment in such company.
−Removed: Our private equity funds’ performance, and our performance, may be adversely affected by the financial performance of our portfolio companies and the industries in which our funds invest.
−Removed: Our performance and the performance of our private equity funds are significantly impacted by the value of the companies in which our funds have invested.
−Removed: Our funds invest in companies in many different industries, each of which is subject to volatility based upon economic and market factors.
−Removed: During both the 2008 global financial crisis and the ongoing COVID-19 pandemic, we have experienced significant fluctuations in the fair value of securities held by our funds.
−Removed: The concomitant recession and recovery, or anticipated recovery, in the real economy subsequent to both the 2008 global financial crisis and COVID-19 pandemic also exerted and are expected to exert a significant impact on overall performance activity and the demands for many of the goods and services provided by portfolio companies of the funds we advise.
−Removed: Although we believe the U.S.
−Removed: economy has exited the recession induced by the COVID-19 pandemic, obstacles to continued growth remain, such as geopolitical and domestic political uncertainty, high inflation, a sharp shift in monetary policy, depressed labor force participation, high levels of public debt, slowing population growth, supply chain pressures and economic stress outside the U.S.
−Removed: These factors and other general economic trends can impact the performance of portfolio companies in many industries and geographies.
−Removed: In addition, the value of our investments in portfolio companies in the financial services industry is impacted by the overall health and stability of the credit and equity markets.
−Removed: While the U.S.
−Removed: dollar has weakened substantially since peaking in March 2020, a rebound in its strength could also depress the profits of domestic companies with significant foreign revenues, pressure oil prices, and increase default risk on U.S.
−Removed: dollar-denominated loans and bonds issued by businesses domiciled in emerging market economies (EMEs).
−Removed: An increase in emerging market corporate or sovereign defaults could further impair funding conditions or depress asset prices in these economies.
−Removed: The performance of our private equity funds, and our performance, may be adversely affected to the extent our fund portfolio companies experience adverse performance or additional pressure due to these exogenous factors, such as the COVID-19 pandemic.
−Removed: In addition, the performance of our investment funds and our portfolio companies may be adversely affected by increases in inflationary pressures such as employee wage growth or rising input costs, which could compress profit margins, particularly at our portfolio companies that are unable to effectively increase prices in response.
−Removed: With respect to real estate, various factors could have an adverse effect on investment performance, including, but not limited to, deflation in consumer prices, a low level of consumer confidence in the economy and/or the residential real estate market and rising mortgage interest rates.
−Removed: In response to financial difficulties that are currently being experienced or that may be experienced in the future by certain portfolio companies or real estate investments, we may consider legal, regulatory, tax or other factors in determining the steps we may take to support such companies or investments, which may include enhancing the management team or funding additional capital investments from our investment funds, our senior Carlyle professionals and/or us.
−Removed: The actions we may take to support companies or investments experiencing financial difficulties may not be successful in remedying the financial difficulties and our investment funds, our senior Carlyle professionals or we may not recoup some or all of any capital investments made in support of such companies or investments.
−Removed: The financial projections of our portfolio companies could prove inaccurate.
−Removed: Our funds generally establish the capital structure of portfolio companies on the basis of financial projections prepared by the management of such portfolio companies.
−Removed: These projected operating results will normally be based primarily on judgments of the management of the portfolio companies.
−Removed: In all cases, projections are only estimates of future results that are based upon assumptions made at the time that the projections are developed.
−Removed: General economic conditions, which are not predictable, along with other factors may cause actual performance to fall short of the financial projections that were used to establish a given portfolio company’s capital structure.
−Removed: Because of the leverage that we typically employ in our investments, this could cause a substantial decrease in the value of our equity holdings in the portfolio company.
−Removed: The inaccuracy of financial
−Removed: projections could thus cause us to misstate the values of our fund’s investments and therefore our accrued performance allocations, and ultimately cause our funds’ performance to fall short of our expectations.
+Added: Due to the substantial uncertainty concerning the outcome of transactions involving financially troubled companies, there is a potential risk of loss by a fund of its entire investment in such company.
Contingent liabilities could harm fund performance.
1 unchanged sentence
Such contingent liabilities could be unknown to us at the time of acquisition or, if they are known to us, we may not accurately assess or protect against the risks that they present.
−Removed: Acquired contingent liabilities could thus result in unforeseen losses for our funds.
−Removed: In addition, in connection with the disposition of an investment in a portfolio company, a fund may be required to make representations about the business and financial affairs of such portfolio company typical of those made in connection with the sale of a business.
+Added: Acquired contingent liabilities could therefore result in unforeseen losses for our funds.
+Added: In addition, in connection with the disposition of an investment in a portfolio company, a fund may be required to make representations
+Added: about the business and financial affairs of such portfolio company typical of those made in connection with the sale of a business.
A fund may also be required to indemnify the purchasers of such investment to the extent that any such representations are inaccurate.
6 unchanged sentences
Among other systems, our data security, data privacy, investor reporting and business continuity processes could be impacted by a third party’s inability or unwillingness to perform pursuant to our arrangements with them.
−Removed: In addition, we could suffer legal and reputational damage from such failure to perform if we are then unable to satisfy our obligations under our contracts with third parties or otherwise and could suffer losses in the event we are unable to comply with certain other agreements.
−Removed: In addition, under certain local clearing and settlement regimes, we or our funds could be subject to settlement discipline fines.
+Added: In addition, we could suffer legal and reputational damage from such failure to perform if we are unable to satisfy our obligations under our contracts with third parties or otherwise and could suffer losses in the event we are unable to comply with certain other agreements.
+Added: Moreover, under certain local clearing and settlement regimes, we or our funds could be subject to settlement discipline fines.
The terms of our contracts with third parties surrounding securities transactions are often customized and complex, and many of these arrangements occur in markets or relate to products that are not subject to regulatory oversight.
5 unchanged sentences
The inability to recover our or our investment funds’ assets could have a material impact on us or on the performance of our funds.
+Added: The investments of our private equity funds are subject to a number of inherent risks.
+Added: Our results are highly dependent on our continued ability to generate attractive returns from our investments.
+Added: Investments made by our private equity funds involve a number of significant risks inherent to private equity investing, including the following:
+Added: • we advise funds that invest in businesses that operate in a variety of industries that are subject to extensive domestic and foreign regulation, such as the telecommunications industry, the aerospace, defense and government services industry, the life sciences industry, and the healthcare industry (including companies that supply equipment and services to governmental agencies), that may involve greater risk due to rapidly changing market and governmental conditions in those sectors;
+Added: • significant failures of our portfolio companies to comply with laws and regulations applicable to them may expose us to liabilities, fines or penalties, could affect the ability of our funds to invest in other companies in certain industries in the future and could harm our reputation;
+Added: • companies in which private equity investments are made may have limited financial resources and may be unable to meet their obligations, which may be accompanied by a deterioration in the value of their equity securities or any collateral or guarantees provided with respect to their debt;
+Added: • companies in which private equity investments are made are more likely to depend on the management talents and efforts of a small group of persons and, as a result, the death, disability, resignation or termination of one
+Added: or more of those persons could have a material adverse impact on their business and prospects and the investment made;
+Added: • companies in which private equity investments are made may be businesses or divisions acquired from larger operating entities which may require a rebuilding or replacement of financial reporting, information technology, back office and other operations;
+Added: • companies in which private equity investments are made may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;
+Added: • companies in which private equity investments are made generally have less predictable operating results;
+Added: • instances of fraud, corruption and other deceptive practices committed by senior management of portfolio companies in which our funds invest may undermine our due diligence efforts with respect to such companies and, upon the discovery of such fraud, negatively affect the valuation of a fund’s investments as well as contribute to overall market volatility that can negatively impact a fund’s investment program;
+Added: • our funds may make investments that they do not advantageously dispose of prior to the date the applicable fund is dissolved, either by expiration of such fund’s term or otherwise, resulting in a lower than expected return on the investments and, potentially, on the fund itself;
+Added: • our funds generally establish the capital structure of portfolio companies on the basis of the financial projections based primarily on management judgments and assumptions, and general economic conditions and other factors may cause actual performance to fall short of these financial projections, which could cause a substantial decrease in the value of our equity holdings in the portfolio company and cause our funds’ performance to fall short of our expectations;
+Added: • under ERISA, a “trade or business” within a “controlled group” can be liable for the ERISA Title IV pension obligations (including withdrawal liability for union multiemployer plans) of any other member of the controlled group.
+Added: This “controlled group” liability represents one of the few situations in which one entity’s liability can be imposed upon another simply because the entities are united by common ownership, but in order for such joint and several liability to be imposed, two tests must be satisfied:
+Added: (1) the entity on which such liability is to be imposed must be a “trade or business” and (2) a “controlled group” relationship must exist among such entity and the pension plan sponsor or the contributing employer.
+Added: While a number of cases have held that managing investments is not a “trade or business” for tax purposes, at least one federal circuit court case has concluded that an investment fund could be a “trade or business” for ERISA purposes (and, consequently, could be liable for underfunded pension liabilities of an insolvent portfolio company) based upon a number of factors present in that case, including the fund’s level of involvement in the management of its portfolio companies and the nature of its management fee arrangements.
+Added: Litigation related to the circuit court’s decision suggests that additional factors may be relevant for purposes of determining whether an investment fund could face “controlled group” liability under ERISA, including the structure of the investment, and the nature of the fund’s relationship with other affiliated investors and co-investors in the portfolio company.
+Added: Moreover, regardless of whether or not an investment fund is determined to be a trade or business for purposes of ERISA, a court may hold that one of the fund’s portfolio companies could become jointly and severally liable for another portfolio company’s unfunded pension liabilities pursuant to the ERISA “controlled group” rules, depending upon the relevant investment structures and ownership interests as noted above;
+Added: • executive officers, directors and employees of an equity sponsor may be named as defendants in litigation involving a company in which a private equity investment is made or is being made.
+Added: Our private equity funds’ performance, and our performance, has been and may in the future be adversely affected by the financial performance of our portfolio companies and the industries in which our funds invest.
+Added: Our performance and the performance of our private equity funds are significantly impacted by the value of the companies in which our funds have invested.
+Added: Our funds invest in companies in many different industries, each of which is
+Added: subject to volatility based upon a variety of factors, including economic, market, and geopolitical factors.
+Added: During recessions, periods of elevated uncertainty, or phases of challenging economic and market conditions such as today’s environment of high inflation, rapidly increasing interest rates, and global food and energy shortages, we experience significant fluctuations in the fair value of securities held by our funds.
+Added: Obstacles to growth in the near-term are numerous, such as geopolitical and domestic political uncertainty, the risk of persistently high inflation, sharp shifts in monetary and fiscal policy, depressed labor force participation, high levels of public debt, slowing population growth, supply chain pressures and economic stress outside the United States.
+Added: These factors and other general economic trends can impact the performance of portfolio companies in many industries and geographies.
+Added: In addition, the value of our investments in portfolio companies in the financial services industry is impacted by the overall health and stability of the credit and equity markets.
+Added: dollar strengthened markedly in 2022, although it has retrenched somewhat from its peak.
+Added: A very strong U.S.
+Added: dollar depresses the profits of domestic companies with significant foreign revenues, increases default risk on U.S.
+Added: dollar-denominated loans and bonds issued by businesses domiciled in emerging market economies (“EMEs”), and exacerbates food and energy crises in EMEs as most commodities are invoiced in dollars.
+Added: A sustained period of elevated U.S.
+Added: dollar value relative to global currencies would perpetuate and worsen these trends.
+Added: An increase in emerging market corporate or sovereign defaults could further impair funding conditions or depress asset prices in these economies.
+Added: The performance of our private equity funds, and our performance, may be adversely affected to the extent our fund portfolio companies experience adverse performance or additional pressure due to exogenous factors, such as the COVID-19 pandemic and the Russian invasion of Ukraine.
+Added: For example, during 2022, we recorded an impairment charge of $4.0 million on certain acquired contractual rights related to Carlyle Aviation Partners as a result of impaired income streams from aircraft under lease in Russia.
+Added: In addition, the performance of our investment funds and our portfolio companies may be adversely affected by increases in inflationary pressures such as employee wage growth or rising input costs, which could compress profit margins, particularly at our portfolio companies that are unable to effectively increase prices in response.
+Added: With respect to real estate, various factors could have an adverse effect on investment performance, including, but not limited to, deflation in consumer prices, a low level of consumer confidence in the economy and/or the residential real estate market and rising mortgage interest rates.
+Added: In response to financial difficulties that are currently being experienced or that may be experienced in the future by certain portfolio companies or real estate investments, we may consider legal, regulatory, tax or other factors in determining the steps we may take to support such companies or investments, which may include enhancing the management team or funding additional capital investments from our investment funds, our senior Carlyle professionals and/or us.
+Added: The actions we may take to support companies or investments experiencing financial difficulties may not be successful in remedying the financial difficulties and our investment funds, our senior Carlyle professionals or we may not recoup some or all of any capital investments made in support of such companies or investments.
+Added: Industry Risks Related to the Assets We Manage
+Added: Our real estate funds are subject to risks inherent in the ownership and operation of real estate and the construction and development of real estate.
+Added: Investments in our real estate funds will be subject to the risks inherent in the ownership and operation of real estate and real estate-related businesses and assets.
+Added: These risks include the following:
+Added: • those associated with the burdens of ownership of real property;
+Added: • general and local economic conditions;
+Added: • changes in supply of and demand for competing properties in an area (as a result, for instance, of overbuilding);
+Added: • fluctuations in the average occupancy and room rates for hotel and student housing properties;
+Added: • population and demographic shifts;
+Added: • the financial resources of tenants;
+Added: • changes in building, environmental, zoning and other laws;
+Added: • restrictive covenants, encumbrances and other land or use restrictions;
+Added: • failure to obtain necessary approvals and/or permits;
+Added: • energy and supply shortages;
+Added: • casualty or condemnation losses;
+Added: • various uninsured or uninsurable risks;
+Added: • natural disasters, including increased physical risks from climate change such as event-driven exposures resulting from the increased severity of extreme weather events, such as cyclones, hurricanes or floods, and consequences of longer-term shifts in climate patterns, for example, sustained higher temperatures that may cause sea levels to rise or chronic heat waves, and the effects of climate change on supply and demand;
+Added: • changes in government regulations (such as rent control and those intended to address climate change);
+Added: • changes in the way real estate is occupied as a result of pandemics or other unforeseen events;
+Added: • changes in real property tax rates and operating expenses;
+Added: • changes in interest rates;
+Added: • the reduced availability of mortgage funds or other forms of financings, including construction financing, which may render the sale or refinancing of properties difficult or impracticable;
+Added: • inability to meet debt obligations;
+Added: • breaches by third parties of their contractual obligations, including ground lessors, ground lessees, landlords and tenants;
+Added: • claims by third parties, including adjacent landowners, and homeowners associations;
+Added: • negative developments in the economy that depress travel and leasing activity or rents;
+Added: • environmental liabilities;
+Added: • contingent liabilities on disposition of assets;
+Added: • increase in insurance premiums and changes to the insurance market;
+Added: • unexpected cost overruns and delays in connection with development projects;
+Added: • terrorist attacks, war and other factors that are beyond our control;
+Added: • dependence on local operating partners.
+Added: Our real estate funds’ portfolio investments are subject to various risks that cause fluctuations in occupancy, rental rates, operating income and expenses or that render the sale or financing of the funds’ portfolio investment properties difficult or unattractive, which risks have been exacerbated by the COVID-19 pandemic.
+Added: For example, following the termination or expiration of a tenant’s lease, there could be a period of time before a funds’ portfolio investment will begin receiving rental payments under a replacement lease.
+Added: During that period, the portfolio investments (and indirectly, the funds) will continue to bear fixed expenses such as interest, real estate taxes, maintenance and other operating expenses.
+Added: In addition, declining economic conditions could impair the portfolio investments’ ability to attract replacement tenants and achieve rental rates equal to or greater than the rents paid under previous leases.
+Added: Increased competition for tenants would require the portfolio investments to make capital improvements to properties that we would not otherwise have planned.
+Added: Any unbudgeted capital improvements that a fund undertakes may divert cash that would otherwise be available for distribution to investors.
+Added: To the extent that the portfolio investments are unable to renew leases or re-let spaces as leases expire, decreased cash flow from tenants will result, which would adversely impact the relevant fund’s returns.
+Added: Our real estate funds may also make investments in residential real estate projects and/or otherwise participate in financing opportunities relating to residential real estate assets or portfolios
+Added: thereof from time to time, which may be more highly susceptible to adverse changes in prevailing economic and/or market conditions and present additional risks relative to the ownership and operation of commercial real estate assets.
+Added: With regard to potential environmental liabilities, ownership of real assets in our investment funds or vehicles may increase our risk of liability under laws that impose, regardless of fault, joint and several liability for the cost of remediating contamination and compensation for damages.
+Added: In addition, changes in environmental laws or regulations or the environmental condition of an investment may create liabilities that did not exist at the time of acquisition.
+Added: For example, the current Administration announced several initiatives and have proposed new regulations focused on the climate crisis that could impact our real estate assets in various ways that were not considered at the time of investment.
+Added: Even in cases where we are indemnified by a seller against liabilities arising out of violations of environmental laws and regulations, there can be no assurance as to the financial viability of the seller to satisfy such indemnities or our ability to achieve enforcement of such indemnities.
+Added: In addition to real property assets, our real estate funds may also invest in real estate related operating companies such as logistics hubs and data centers.
+Added: These investments are similar to the portfolio investments made by our buyout and growth funds and are subject to similar risks and uncertainties as apply to those operating companies.
+Added: See “Risks Related to Our Business Operations—Risks Related to the Assets We Manage—The investments of our private equity funds are subject to a number of inherent risks.”
+Added: Real estate markets may experience sharp increases in capitalization rates and declines in value as a result of overall economic decline and the limited availability of financing and the value of certain investments in our real estate funds may decline significantly.
+Added: In addition, if our real estate funds acquire direct or indirect interests in undeveloped land or underdeveloped real property, which may often be non-income producing, they will be subject to the risks normally associated with such assets and development activities, including risks relating to the availability and timely receipt of zoning and other regulatory or environmental approvals, the cost and timely completion of construction (including risks beyond the control of our fund, such as weather or labor conditions or material shortages) and the availability of both construction and permanent financing on favorable terms.
+Added: Moreover, our real estate funds’ properties are often managed by a third party, which makes us dependent upon such third parties and subjects us to risks associated with the actions of such third parties.
+Added: Any of these factors may cause the value of the investments in our real estate funds to decline, which may have a material impact on our results of operations.
+Added: In addition, lenders in commercial real estate financing have been requiring a non-recourse carveout guarantee and environmental indemnity, which typically provides that the lender can recover losses from guarantors for certain bad acts, such as fraud or intentional misrepresentation, intentional waste, willful misconduct, criminal acts, misappropriation of funds, voluntary incurrence of prohibited debt and environmental losses sustained by lender.
+Added: For our acquisitions, non-recourse carveout guarantees and environmental indemnities may be extended by our funds.
+Added: We expect that commercial real estate financing arrangements generally will increasingly continue to require non-recourse carveout guarantees and environmental indemnities.
+Added: In addition, lenders may require interest, carry and/or payment guarantees in connection with a real estate financing arrangement, which may be provided by the fund.
+Added: In the event that any such guarantee or indemnity is called, a fund’s or our assets could be negatively impacted and we or our funds may be subject to liability.
+Added: The acquisition, ownership and disposition of real properties carry certain specific litigation risks.
+Added: Litigation may be commenced with respect to a property acquired in relation to events or circumstances relating to periods prior to the acquisition of such property.
+Added: In addition, at the time of disposition, other potential buyers may bring claims related to the asset or for due diligence expenses or other damages.
+Added: After the sale of a real estate asset, buyers may later sue our funds or us for losses associated with latent defects or other problems not uncovered in due diligence.
+Added: Litigation can arise for events or circumstances that occur or are alleged to occur during the ownership period.
+Added: We or our funds may also be subject to certain risks associated with investments and, in particular, real estate-related assets.
+Added: Real estate investment trusts (“REITs”) and other types of owners may be affected by changes in the value of their underlying properties and defaults by borrowers or tenants, and in the case of REITS, changes in tax laws or by a failure to qualify for tax-free pass through income could impair a REIT’s ability to generate cash flows to make distributions.
+Added: Qualification as a REIT also depends on a REIT’s ability to meet various requirements imposed by the U.S.
+Added: Internal Revenue Code of 1986, as amended (the “Code”), which relate to organizational structure, annual distributions, diversity of stock ownership, and certain restrictions with regard to the nature of their assets and the sources of their income.
+Added: If a REIT fails to qualify as a REIT in any taxable year, it will be subject to U.S.
+Added: federal income tax at regular corporate rates, and applicable state and local taxes, which would reduce the amount of cash available for distribution to its stockholders.
+Added: Investments in real estate debt investments may be unsecured and/or subordinated to a substantial amount of indebtedness and may not be protected by financial covenants.
+Added: Non-performing real estate loans may require a substantial amount of workout negotiations and/or modification, which may entail, among other things, a substantial reduction in the interest rate and a substantial write-down of the principal of such loan.
+Added: Investments in commercial mortgage loans are subject to risks of delinquency, foreclosure and loss of principal.
+Added: In the event of any default under a mortgage loan held directly by us or one of our funds, we or our fund will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the loan.
+Added: Investments in distressed assets or businesses may have little or no near-term cash flow, involve a high degree of risk and, if subject to bankruptcy or insolvency, could be subordinated or disallowed.
+Added: Our energy business is involved in oil and gas investments (i.e, exploration, production, storage, transportation, logistics, refining, marketing, trading, petrochemicals, energy services and other opportunistic investments), which entail a high degree of risk.
+Added: Our energy teams focus on investments in businesses involved in oil and gas production, development and exploration, which can be a speculative business involving a high degree of risk, including:
+Added: • the use of new technologies;
+Added: • reliance on estimates of oil and gas reserves in the evaluation of available geological, geophysical, engineering and economic data for each reservoir;
+Added: • encountering unexpected formations or pressures, premature declines of reservoirs, blow-outs, equipment failures and other accidents in completing wells and otherwise, cratering, sour gas releases, uncontrollable flows of oil, natural gas or well fluids, adverse weather conditions, pollution, fires, spills and other environmental risks;
+Added: • the volatility of oil and natural gas prices and its impact on the demand for oil and gas products and services (climate change related or otherwise);
+Added: • potential contributions to anthropogenic climate change, as well as regulations and stakeholder scrutiny related to the same.
+Added: In order to better manage these risks, we seek to help a subset of companies accelerate progress related to climate change and the energy transition.
+Added: For example, we help select companies to measure, monitor, and manage their carbon emissions, set decarbonization goals and associated pathways, and consider investments in new technologies to build additional long-term value in these companies, and position them to find opportunities in response to changing market dynamics;
+Added: however, there is no guarantee that such efforts will be successful.
+Added: Oil, gas and product prices are subject to international supply and demand dynamics and, as a consequence, related margins can be volatile.
+Added: In 2020, demand was negatively affected by the COVID-19 pandemic, which triggered unprecedented global and local travel restrictions as well as regional and nationwide quarantines.
+Added: In some regions, including China, these restrictions continue today.
+Added: At the same time, supply was affected by the inability of the members of the Organization of Petroleum Exporting Countries (“OPEC”) to agree to crude production curtailments in the first half of 2020.
+Added: The resultant supply surplus triggered accumulation of substantial inventories of crude oil and refined products.
+Added: Together, these phenomena resulted in a large drop in crude oil prices, lower gas prices, and lower refining margins.
+Added: In 2021, however, oil and gas prices rebounded sharply and rapidly, as stronger-than-expected demand outpaced sluggish supply.
+Added: In particular, European consumers and businesses faced energy supply shortages and high prices heading into 2022.
+Added: The supply-demand imbalance was further compounded by the beginning of the war in Ukraine in February 2022 and the introduction of various sanctions against Russia that followed.
+Added: The European energy situation could further deteriorate in the near- and medium-term if events between Russia, Ukraine and NATO continue to escalate.
+Added: Faced with this energy crisis, certain European countries have introduced or are considering the introduction of additional taxes on local energy producers, including some of our existing investments.
+Added: In general, political developments, see-sawing supply-demand dynamics, technological change, global macroeconomic conditions, public health risks and changes in the influence of OPEC may continue to impact commodity prices going forward and the financial performance of some of our existing and future investments.
+Added: Our investments that are exposed to energy prices, either as consumers or producers of energy, and their financial performance has been, and is likely to continue to be, affected by the continued volatility in energy prices.
+Added: To the extent that current conditions persist or worsen, there may be adverse impacts on
+Added: the financial performance of the affected businesses, on the availability of financing or credit to them as well as their asset prices and valuations.
+Added: Oil prices tend to experience significant volatility in response to macroeconomic trends, trade developments, geopolitical events, and data on inventories, global demand, future supply, and U.S.
+Added: dollar strength.
+Added: Oil’s strong performance in 2022, ending the year 10% above 2021 levels, is largely attributable to increased demand, persistent global supply discipline and global commodity market dislocations as a result of sanctions against Russia.
+Added: Prices for oil and natural gas are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for oil and natural gas as well as numerous additional factors such as market uncertainty, speculation, the level of consumer product demand, the refining capacity of oil purchasers, weather conditions, domestic and non-U.S.
+Added: governmental regulations, appreciation or depreciation of the U.S.
+Added: dollar, the price and availability of alternative fuels, political conditions in the Middle East, Africa, and Eastern Europe, actions of the OPEC, the non-U.S.
+Added: supply of oil and natural gas, U.S.
+Added: and global inventories, the price of non-U.S.
+Added: imports and overall economic conditions.
+Added: In addition, changes in commodity prices can vary widely from one location to the next depending upon the characteristics of the production and the availability of gathering, transportation, processing and storage facilities used to transport the oil and gas to markets.
+Added: In the event that oil prices decline sharply in the future, or fail to sustain upward price momentum, it is possible our portfolio could be adversely impacted.
+Added: In the event that global commodity market dislocations persist and energy prices stay elevated or increase sharply in the future, it is possible that our portfolio could be adversely impacted by potential changes in the fiscal regimes that the host countries of our investments apply to energy producers.
+Added: In response to the ongoing war in Ukraine, and the developing legal and geopolitical response, we are monitoring exposure to Russia, Ukraine and Belarus across our global portfolio from an economic, legal and human capital perspective.
+Added: We are working closely with external sanctions counsel to stay abreast of rapidly evolving sanctions and geopolitical risks and to help support compliance across the portfolio.
+Added: Given the nature of the industry in which our energy teams invest, there are necessarily connections to Russian-owned oil and gas companies.
+Added: These connections, and other dealings with Russian-owned oil and gas companies, are under close scrutiny in light of geopolitical considerations.
+Added: Given this, there is a risk that national and international sanctions related to the war in Ukraine, and associated compliance and regulatory issues, could have a material impact on our business.
+Added: To date, however, we have not identified any matters that trigger adverse regulatory concerns as a result of such sanctions.
+Added: In January 2021, the current Administration issued an executive order, “Ensuring the Future Is Made in All of America by All of America’s Workers,” which has the potential to impact federal contractors and certain grant and loan recipients and their contractors.
+Added: While the only immediate impact of the order is the creation of a “Made in America” Office within the Office of Management and Budget to review federal agency waiver requests, the longer-term impact of potential changes to the Federal Acquisition Regulation and statutory exemptions for commercial item information technology and trade agreements and the change in waiver procedures requirements for certain grant and loan programs could impact certain investments.
Investments in the natural resources industry, including the infrastructure and power industries, involve various operational, construction and regulatory risks.
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Unanticipated changes in the availability or price of inputs necessary for the operation of infrastructure assets may adversely affect the overall profitability of the investment or related project.
−Removed: Events outside the control of a portfolio company, such as political action, governmental regulation (including potential climate change initiatives), demographic changes, economic growth, increasing fuel prices, government macroeconomic policies, toll rates, social stability, competition from untolled or other forms of transportation, natural disasters (climate change related or otherwise), changes in weather, changes in demand for products or services, bankruptcy or financial difficulty of a major customer and acts of war or terrorism, could significantly reduce the revenues generated or significantly increase the expense of constructing, operating, maintaining or restoring infrastructure facilities.
+Added: Events outside the control of a portfolio company, such as political action, governmental regulation (including potential climate change initiatives), demographic changes, economic growth, increasing fuel prices, government macroeconomic policies, service or product prices, social stability, competition from other businesses and infrastructure, natural disasters (climate change related or otherwise), changes in weather patterns, changes in demand for products or services, bankruptcy or financial difficulty of a major customer and acts of war or terrorism, could significantly reduce the revenues generated or significantly increase the expense of constructing, operating, maintaining or restoring infrastructure facilities.
In turn, this may impair a portfolio company’s ability to repay its debt, make distributions or even result in termination of an applicable concession or other agreement.
Although portfolio companies may maintain insurance to protect against certain risks, where available on reasonable commercial terms (such as business interruption insurance that is intended to offset loss of revenues during an operational interruption), such insurance is subject to customary deductibles and coverage limits and may not be sufficient to recoup all of an investment’s losses.
−Removed: Furthermore, once infrastructure assets of investments become operational, they may face competition from other infrastructure assets in the
−Removed: vicinity of the assets they operate, the presence of which depends in part on governmental plans and policies, over which we have no control.
+Added: Moreover, once infrastructure assets of investments become operational, they may face competition from other infrastructure assets in the vicinity of the assets they operate, the presence of which depends in part on governmental plans and policies, over which we have no control.
Infrastructure investments are subject to substantial government regulation and governments have considerable discretion to implement regulations that could affect the business of infrastructure investing.
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For instance, the lease or concession may enable the government to terminate the lease or concession in certain circumstances without requiring payment of adequate compensation.
−Removed: The development, operation and maintenance of power generation facilities involves various operational risks, which can include mechanical and structural failure, accidents, labor issues or the failure of technology to perform as anticipated.
+Added: The development, operation and maintenance of power generation or infrastructure facilities involves various operational risks, which can include mechanical and structural failure, accidents, labor issues or the failure of technology to perform as anticipated.
Events outside our control, such as economic developments, changes in fuel prices or the price of other feedstocks, governmental policies, demand for energy and similar events, could materially reduce the revenues generated or increase the expenses of constructing, operating, maintaining or restoring power generation businesses.
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Any events of this nature could severely delay or prevent the completion of, or significantly increase the cost of, the construction.
−Removed: In addition, there are risks inherent in the construction work which may give rise to claims or demands against one of our portfolio companies from time to time.
+Added: In addition, there are risks inherent in the construction work that may give rise to claims or demands against one of our portfolio companies from time to time.
Delays in the completion of any energy or power project may result in lost revenues or increased expenses, including higher operation and maintenance costs related to such portfolio company.
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To the extent that we invest in such development activities, it will be subject to the risks normally associated with such activities.
−Removed: Such risks include, without limitation, risks relating to the availability and timely receipt of zoning and other regulatory approvals, the cost and timely completion of construction (including risks beyond our control, such as weather or labor conditions or material shortages) and the availability of both construction and permanent financing on favorable terms.
−Removed: These risks could result in
−Removed: substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have an adverse effect on the financial condition and results of operations.
+Added: Such risks include,
+Added: without limitation, risks relating to the availability and timely receipt of zoning and other regulatory approvals, the cost and timely completion of construction (including risks beyond our control, such as weather or labor conditions or material shortages) and the availability of both construction and permanent financing on favorable terms.
+Added: These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have an adverse effect on the financial condition and results of operations.
Investments in electric utility industries both in the United States and abroad continue to experience increasing competitive pressures, primarily in wholesale markets, as a result of consumer demands, technological advances, greater availability of natural gas and other factors.
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As a result, additional significant competitors could become active in the independent power industry.
−Removed: We invest in companies that produce hy d rocarbons.
−Removed: Due to concerns over the risks of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions.
−Removed: These include adoption of cap and trade regimes, carbon taxes, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable energy.
−Removed: These requirements could be costly, lengthen project implementation times, and reduce demand for hydrocarbons, as well as shift hydrocarbon demand toward relatively lower-carbon sources such as natural gas.
−Removed: Current and pending greenhouse gas regulations or policies may also increase compliance costs for our portfolio companies, such as for monitoring or sequestering emissions.
−Removed: Additionally, such requirements could have a negative impact on our ability to obtain suitable or sufficient financing, exit certain of our energy investments or adversely affect the expected returns of new investment opportunities.
+Added: We invest in companies that produce hy d rocarbons, the combustion of which releases greenhouse gases linked to climate change.
+Added: Governmental and regulatory bodies, investors, consumers, and other stakeholders are increasingly focused on combatting climate change and a number of jurisdictions have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions.
+Added: These include adoption of cap and trade regimes, carbon taxes, restrictive permitting, increased efficiency standards, climate-related reporting, and incentives or mandates for renewable energy, among others.
+Added: Compliance with these regulatory requirements could be costly, lengthen project implementation times, and, together with changes in consumer preferences and technological advances in the alternative energy sector, reduce demand for hydrocarbons, as well as shift hydrocarbon demand toward relatively lower-carbon sources such as natural gas.
+Added: Current and pending greenhouse gas regulations or policies may also increase compliance costs for us and/or our portfolio companies, such as for monitoring or sequestering emissions, and promote alternatives to hydrocarbons.
+Added: Companies that produce hydrocarbons are also increasingly subject to the risk of activism, litigation, and regulatory enforcement related to such companies’ operations, or actual or alleged environmental impacts, as well as increased scrutiny from lenders with regards to sustainability considerations.
+Added: Such requirements, as well as social, economic, and technological developments, could have a negative impact on our ability to obtain suitable or sufficient financing, exit certain of our energy investments or adversely affect the expected returns of new investment opportunities.
The energy, infrastructure, power and natural resource sectors are subject to comprehensive United States and non-U.S.
federal, state and local laws and regulations.
−Removed: These regulators include the Federal Energy Regulatory Commission (the “FERC”), which has jurisdiction over the transmission and wholesale sale of electricity in interstate commerce and over the transportation, storage and certain sales of natural gas in interstate commerce, including the rates, charges and other terms and conditions for such services, respectively and the North American Electric Reliability Corporation (“NERC”), the purpose of which is to establish and enforce reliability standards applicable to all users, owners and operators of the bulk power system.
+Added: These regulators include the Federal Energy Regulatory Commission (the “FERC”), which has jurisdiction over the transmission and wholesale sale of electricity in interstate commerce and over the transportation, storage and certain sales of natural gas in interstate commerce, including the rates, charges and other terms and conditions for such services, respectively and the North American Electric Reliability Corporation (the “NERC”), the purpose of which is to establish and enforce reliability standards applicable to all users, owners and operators of the bulk power system.
These regulators derive their authority from, among other laws, the Federal Power Act, as amended (the “FPA”), The Energy Policy Act of 2005, the Natural Gas Act, as amended (the “NGA”) and state and local public utility laws.
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Additional or unanticipated regulatory approvals, including, without limitation, renewals, extensions, transfers, assignments, reissuances or similar actions, may be required to acquire or operate infrastructure assets, and additional approvals may become applicable in the future due to a change in laws and regulations, a change in the portfolio company’s customer(s) or for other reasons.
−Removed: Furthermore, permits or special rulings may be required on taxation, financial and regulatory related issues.
+Added: Moreover, permits or special rulings may be required on taxation, financial and regulatory related issues.
There can be no assurance that a portfolio company will be able to (i) obtain all required regulatory approvals that it does not yet have or that it may require in the future, (ii) obtain any necessary modifications to existing regulatory approvals, or (iii) maintain required regulatory approvals.
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Similar support, initiatives and arrangements exist in non-U.S.
−Removed: jurisdictions as well, in particular the European Union.
+Added: jurisdictions as well, such as in the European Union.
jurisdictions may have more variable views on policies regarding renewable energy (and, for example, may be more willing or likely to abandon initiatives regarding renewable energy in favor of more carbon-intensive forms of traditional energy generation).
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Conversely, because policies favoring renewable energy initiatives may involve economic disincentives on more carbon-intensive forms of traditional energy generation, such policies may adversely affect other investments that do not involve renewable energy projects.
+Added: Climate change and regulatory and other efforts to reduce climate change could adversely affect our business.
+Added: We and our funds’ portfolio companies face a number of risks associated with climate change, including both transition and physical risks.
+Added: The transition risks that could impact our Company and our funds’ investments in portfolio companies include those risks related to the impact of U.S.
+Added: and foreign climate-and ESG-related legislation and regulation, as well as risks arising from climate-related business trends.
+Added: Moreover, we and our funds’ investments in portfolio companies are subject to risks stemming from the physical impacts of climate change.
+Added: New climate change-related regulations or interpretations of existing laws may result in enhanced disclosure obligations that could negatively affect us or our funds’ investments in portfolio companies and also materially increase our regulatory burden.
+Added: Increased regulations generally increase the costs to us, our funds and our funds’ portfolio companies, and those higher costs may continue to increase if new laws require additional resources, including spending more time, hiring additional personnel or investing in new technologies.
+Added: Moreover, significant increases in regulatory compliance expenses may negatively impact our funds and their portfolio company investments.
+Added: In particular, compliance with climate- and other ESG-related rules in the EU is expected to result in increased legal and compliance costs and expenses, which would be borne by us, our funds and/or our funds’ portfolio companies.
+Added: In addition, our funds’ portfolio companies could face transition risk if carbon-related regulations or taxes are implemented.
+Added: See “Risks Related to Regulation and Litigation—Regulatory initiatives in jurisdictions outside the United States could adversely affect our business” and “ Increasing scrutiny from stakeholders on ESG matters, including our ESG reporting, exposes us to reputational and other risks.”
+Added: We also face business trend-related climate risks.
+Added: Certain fund investors are increasingly taking into account ESG factors, including climate risks, in determining whether to invest in the funds we manage.
+Added: In addition, our reputation and investor relationships could be damaged as a result of our involvement, or our funds’ involvement, in certain industries, portfolio companies or transactions associated with activities perceived to be causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.
+Added: Moreover, significant physical effects of climate change, including extreme weather events, such as hurricanes or floods, can also have an adverse impact on certain of our funds’ investments in portfolio companies and other investments, especially real asset and infrastructure investments and portfolio companies that rely on physical factories, plants or stores located in affected areas.
+Added: As the effects of climate change increase, we expect the frequency and impact of weather and climate related events and conditions to increase as well.
+Added: Our CLO business and investment into CLOs involves certain risks.
+Added: CLOs may present risks similar to other types of debt obligations and, in fact, such risks may be of greater significance in the case of CLOs.
+Added: For example, investments in structured vehicles, including equity and junior debt securities issued by CLOs, involve risks, such as credit risk and market risk.
+Added: Changes in interest rates and credit quality may cause short-term price fluctuations or longer term impairment.
+Added: In addition, a reduction in the liquidity of the credit markets may result in an increase in credit spreads and a decline in ratings, performance and market values for leveraged loans.
+Added: We have significant exposure to these markets through our investment in our CLO funds.
+Added: In addition to the general risks associated with investing in debt securities, CLO securities carry additional risks, including, but not limited to, the possibility that distributions from collateral assets will be inadequate to make interest or other payments and the quality of the collateral may decline in value, default or be downgraded.
+Added: Moreover, changes in the collateral held by a CLO may cause payments on the instruments we hold to be reduced, either temporarily or permanently.
+Added: Non-payment could result in a reduction of our income and revenues.
+Added: CLOs are less liquid than other types of securities and may be more volatile than the individual assets that make-up the CLOs.
+Added: In addition, CLOs and other structured finance securities may be subject to prepayment risk.
+Added: Further, the performance of a CLO or other structured finance security is generally affected by a variety of factors, including the security’s priority in the capital structure of the issuer thereof, the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans or other assets that are being securitized, remoteness of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral and the capability of the servicer of the securitized assets.
+Added: There are also risks that the trustee of a CLO does not properly carry out its duties to the CLO, potentially resulting in loss to the CLO.
+Added: Moreover, the complex structure of the security may produce unexpected investment results, especially during times of market stress or volatility.
+Added: Investments in structured finance securities may also be subject to liquidity risk.
+Added: During 2022, we earned approximately $193 million in management fees from our CLOs, prior to the effects of consolidation, of which approximately 62% are in the form of subordinated fees.
+Added: The subordinated fees we generate from our CLO business could be negatively impacted if one or more CLOs fail certain tests related to overcollateralization (including the interest diversion test) set forth in their respective indentures.
+Added: In the event that worsening credit conditions and/or a deterioration in loan performance generally leads to defaults or downgrades of the CLOs’ underlying collateral obligations, one or more CLOs could fail one or more overcollateralization tests and/or interest diversion tests.
+Added: These risks are correlated, as when an underlying collateral obligation defaults or is downgraded below a certain threshold, such collateral obligation is then carried below par for the purpose of overcollateralization and interest diversion testing, making a failure of any such test more likely to occur.
+Added: Any such failure would result in funds otherwise available to pay the management fees we earn on such investment vehicle to instead be used to either (x) pay down the principal on the securities issued by such vehicle in an amount necessary to cause such tests to pass or (y) purchase sufficient collateral in an amount necessary to cause such CLO to pass such tests.
+Added: If either of these scenarios occurred, there is the potential that the remaining funds would be insufficient to pay expected management fees on any such CLO, which would result in either a temporary deferral or permanent loss of such management fees.
+Added: For example, in the early stages of the COVID-19 pandemic, ratings agencies downgraded certain underlying collateral obligations in our CLOs.
+Added: As a result, we did not recognize approximately $7.0 million of subordinated management fees from our CLOs in the first and second quarters of 2020, but recognized such amounts in the third quarter of 2020 due to improvement in the underlying CLO portfolios.
+Added: Underwriting, syndicating and securities placement activities expose us to risks.
+Added: TCG Capital Markets may act as an underwriter, syndicator or placement agent for security offerings and TCG Senior Funding L.L.C.
+Added: may act as an underwriter, originator, syndicator or placement agent in loan originations.
+Added: If we are unable to
+Added: sell securities or place loans at the anticipated price levels where we act as an underwriter, syndicator or placement agent, we may incur losses and suffer reputational harm.
+Added: As an underwriter, syndicator or placement agent, we also may be subject to potential liability for material misstatements or omissions in prospectuses and other offering documents relating to offerings we underwrite, syndicate or place.
+Added: In certain situations, we may have liabilities arising from transactions in which our investment fund may participate as a purchase or a seller of securities, which could constitute a conflict of interest or subject us to damages or reputational harm.
Investments in the insurance industry (including our investment in Fortitude) could be adversely impacted by insurance regulations and potential regulatory reforms.
−Removed: Carlyle FRL, L.P., an affiliated investment fund (“Carlyle FRL”), holds an indirect 71.5% controlling interest in Fortitude Re, inclusive of our 19.9% interest, through its 71.5% controlling interest in Fortitude.
−Removed: The insurance industry is highly regulated and the regulators in many jurisdictions have broad, and in some cases discretionary, authority over insurance companies, including, among other things, with respect to marketing practices, policy rate increases, reserve requirements, permissible investments and affiliate transactions.
+Added: Carlyle FRL, L.P., an affiliated investment fund (“Carlyle FRL”), holds an indirect 71.5% controlling interest in Fortitude Re, inclusive of our 13.5% interest.
+Added: The insurance industry is highly regulated and the regulators in many jurisdictions have broad, and in some cases discretionary, authority over insurance companies, including, among other things, with respect to marketing practices, policy rate increases, reserve requirements, capital adequacy, permissible investments and affiliate transactions.
In addition, the insurance sector is subject to frequent regulatory change.
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Any such costs could negatively impact the value of our investments and the returns we are able to generate on such investments.
+Added: See “Risks Related to our Company—Adverse economic and market conditions and other events or conditions throughout the world could negatively impact our business in many ways, including by reducing the value or performance of the investments made by our investment funds and reducing the ability of our investment funds to raise capital, any of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.”
Our relationship with Fortitude may not generate a meaningful contribution to our revenue and our indirect controlling ownership of Fortitude could give rise to real or apparent conflicts of interest.
−Removed: While we expect to derive a meaningful contribution to our revenue across our business segments from our investment in and strategic asset management relationship with Fortitude, as described in Note 4 to Part II.
−Removed: Item 8, “—Investments—Strategic Investment in Fortitude,” we may not be successful in doing so.
+Added: While we expect to derive a meaningful contribution to our revenue across our business segments from our investment in and strategic asset management relationship with Fortitude, as described in Note 4 to Part II, Item 8 “—Investments—Strategic Investment in Fortitude,” we may not be successful in doing so.
Pursuant to investment management agreements into which we have entered with Fortitude Re and certain companies with which it has reinsurance agreements (the “Ceding Companies”), certain of our subsidiaries receive performance fees and/or management fees from carry funds and separately managed accounts into which Fortitude Re and the Ceding Companies invest.
Through its subsidiaries we managed or advised $9.2 billion of capital attributable to investments made under these investment management agreements, as of December 31, 2022.
+Added: In addition, in April 2022, we entered into a strategic advisory services agreement with certain subsidiaries of Fortitude through a newly-formed investment advisor, Carlyle Insurance Solutions Management L.L.C.
+Added: Under the agreement, CISM provides Fortitude with certain services, including business development and growth, transaction origination and execution, and capital management services in exchange for a recurring management fee based on Fortitude’s general account assets, which adjusts within an agreed range based on Fortitude’s overall profitability.
+Added: Such management fee may decline if there is a corresponding decline in the fair value of the assets we manage and/or the performance of the portfolio.
Our investment management agreements with Fortitude Re and the Ceding Companies are terminable under certain circumstances.
If such investment management agreements were terminated, it could have a material adverse effect on our business, results of operations and financial condition.
−Removed: There can be no assurance that the benefit we receive from Fortitude Re will not decline due to a disruption or decline in Fortitude’s business or a change in our relationship with Fortitude, including our investment income from our indirect interest in Fortitude and/or investment management agreements with Fortitude Re and the Ceding Companies.
+Added: There can be no assurance that the benefit we receive from Fortitude Re will not decline due to a disruption or decline in Fortitude’s business or a change in our relationship with Fortitude, including
+Added: our investment income from our indirect interest in Fortitude and/or investment management agreements with Fortitude Re and the Ceding Companies.
We may be unable to replace a decline in the revenue derived from investments made in our funds and entities by Fortitude Re and/or the Ceding Companies on a timely basis if our relationship with Fortitude were to change or if Fortitude were to experience a material adverse impact to its business.
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• The Global Investment Solutions business is subject to business and other risks and uncertainties generally consistent with our business as a whole, including without limitation legal, tax and regulatory risks, the avoidance or management of conflicts of interest and the ability to attract and retain investment professionals and other personnel, and risks associated with the acquisition of new investment platforms.
−Removed: • Pursuant to our current arrangements with the various businesses, we currently restrict our participation in the investment activities undertaken by our Global Investment Solutions segment (including with respect to AlpInvest), which may in turn limit our ability to address risks arising from their investment activities.
+Added: • Pursuant to our current arrangements with the various businesses, we restrict our participation in the investment activities undertaken by our Global Investment Solutions segment (including with respect to AlpInvest), which may in turn limit our ability to address risks arising from their investment activities.
For example, although we maintain ultimate control over AlpInvest, its management team (who are our employees) continue to exercise independent investment authority without involvement by other Carlyle personnel.
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• Similar to other parts of our business, Global Investment Solutions is seeking to broaden its investor base by raising funds and advising separate accounts for investors on an account-by-account basis and the number and complexity of such investor mandates and fund structures has increased as a result of continuing fundraising efforts, and the activation of mandates with existing investors.
−Removed: • Conflicts may arise between such Global Investment Solutions funds or separate managed accounts (e.g., competition for investment opportunities), and in some cases conflicts may arise between an Global Investment Solutions fund or managed account and a Carlyle fund.
+Added: • Conflicts may arise between such Global Investment Solutions funds or separate managed accounts (e.g., competition for investment opportunities), and in some cases conflicts may arise between a Global Investment Solutions fund or managed account and a Carlyle fund.
In addition, certain managed accounts may have different or heightened standards of care, and if they invest in other investment funds sponsored by us could result in lower management fees and carried interest to us than Carlyle’s typical investment funds.
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This information barrier limits the collaboration between our investment professionals with respect to specific investments.
−Removed: Ongoing trade negotiations and potential for further regulatory reform may create regulatory uncertainty for our portfolio companies and our investment strategies and adversely affect the profitability of our portfolio companies.
−Removed: Since March 2018, the United States has imposed, or threatened to impose, a series of various tariffs on a variety of goods imported into the U.S., with an emphasis on those imported from China and the EU.
−Removed: These new tariffs, or other changes in U.S.
−Removed: trade policy, have resulted in, and may continue to trigger, retaliatory actions by affected countries, particularly China.
−Removed: While the U.S.
−Removed: and China signed a preliminary trade deal in January 2020 halting further tariffs and increasing sales of U.S.
−Removed: goods to China, the agreement leaves in place most tariffs on Chinese goods.
−Removed: government has also implemented and expanded a number of economic sanctions programs and export controls that target Chinese entities and nationals on national security grounds, and has imposed restrictions on our ability to acquire and retain interests in the securities of certain Chinese entities.
−Removed: These initiatives target, for example, China’s response to political demonstrations in Hong Kong, China’s conduct concerning the treatment of Uighurs and other ethnic minorities in its Xinjiang province, and certain Chinese entities designated by the U.S.
−Removed: government as Communist Chinese military companies, among other things.
−Removed: Tensions globally remain elevated and the path of future trade policy and further permanent trade agreements with China are still unclear.
−Removed: A “trade war” or other governmental action related to tariffs or international trade agreements or policies has the potential to increase costs, decrease margins, reduce the competitiveness of products and services offered by current and future portfolio companies and adversely affect the revenues and profitability of companies whose businesses rely on goods imported from or exported to any country impacted by such policies.
−Removed: In addition, tariff increases may adversely affect our suppliers and certain other customers of our portfolio companies, which could amplify the negative impact on our operating results or future cash flows.
Risks Related to Our Common Stock
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The market price of our common stock could decline as a result of sales of a large number of shares of common stock in the market in the future or the perception that such sales could occur.
−Removed: These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell common stock in the future at a time and at a price that we deem appropriate.
+Added: These sales, or the possibility that these sales may
+Added: occur, also may make it more difficult for us to sell common stock in the future at a time and at a price that we deem appropriate.
Subject, in some cases, to compliance with our insider trading policy, minimum retained ownership requirements and limitations applicable to affiliates under Rule 144 under the Securities Act, all of these shares are freely tradable.
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In June 2021, our stockholders approved an amended and restated Equity Incentive Plan pursuant to which we may issue up to 16,000,000 awards.
−Removed: As of December 31, 2021, the total number of shares of common stock available for grant under the amended and restated Equity Incentive Plan was 15,636,767.
+Added: As of December 31, 2022, the total number of shares of common stock available for grant under the amended and restated Equity Incentive Plan was 12,861,371 and, following the grant of awards in February 2023, the total number of shares of common stock available for grant under the amended and restated Equity Incentive Plan was 2,957,542.
+Added: An increase in the number of shares available for grant under the Equity Incentive Plan would require shareholder approval, and any such approval would result in more shares that may be delivered in settlement of vested restricted stock unit awards and that may ultimately be sold in the market, which could lead to a decline in the market price of our common stock.
We have filed several registration statements and intend to file additional registration statements on Form S-8 under the Securities Act to register shares of common stock or securities convertible into or exchangeable for common stock issued or available for future grant under our amended and restated Equity Incentive Plan when applicable.
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Accordingly, common stock registered under such registration statement will be available for sale in the open market.
−Removed: Morgan Stanley, our equity plan service provider, may, from time to time, act as a broker, dealer, or agent for, or otherwise facilitate sales in the open market through block transactions or otherwise of our common stock on behalf of, plan participants, including
−Removed: in connection with sales of shares of common stock to fund tax obligations payable in connection with the vesting of awards under our amended and restated Equity Incentive Plan.
+Added: As restricted stock unit awards vest and shares of common stock are delivered to restricted stock unit holders, the market price of our common stock may decline if such holders elect to sell their shares of common stock.
+Added: Morgan Stanley, our equity plan service provider, may, from time to time, act as a broker, dealer, or agent for, or otherwise facilitate sales in the open market through block transactions or otherwise of our common stock on behalf of, plan participants, including in connection with sales of shares of common stock to fund tax obligations payable in connection with the vesting of awards under our amended and restated Equity Incentive Plan.
The market price of our common stock may be volatile, which could cause the value of your investment to decline.
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Due to such limited trading volume, the price of our common stock may display abrupt or erratic movements at times.
−Removed: Additionally, it may be more difficult for investors to buy and sell significant amounts of our common stock without an unfavorable impact on prevailing market prices.
+Added: It also may be more difficult for investors to buy and sell significant amounts of our common stock without an unfavorable impact on prevailing market prices.
The market price of our common stock may be highly volatile and could be subject to wide fluctuations.
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In the past few years, stock markets have experienced extreme price and volume fluctuations.
−Removed: In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against public companies.
+Added: Following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against public companies.
This type of litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
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may not coincide with our interests or the interests of other holders of our common stock.
−Removed: We are transitioning from a “controlled company” to no longer being a “controlled company” within the meaning of the rules of Nasdaq and the SEC.
−Removed: However, even though we are no longer a “controlled company”, we will continue to qualify for, and as a result rely on, exceptions from certain corporate governance requirements under the rules of Nasdaq during a one-year transition period.
−Removed: Prior to August 5, 2021, we were a “controlled company” and qualified for exceptions from certain corporate governance and other requirements of the rules of Nasdaq.
−Removed: Pursuant to these exceptions, controlled companies may elect not to comply with certain corporate governance requirements of Nasdaq, including the requirements (1) that a majority of our Board of Directors consist of independent directors, (2) that we have a compensation committee that is composed entirely of independent directors, (3) that the compensation committee be required to consider certain independence factors when engaging compensation consultants, legal counsel and other committee advisors, and (4) that we have independent director oversight of director nominations.
−Removed: We have availed ourselves of these exceptions in the past and continue to rely on certain of these exceptions as permitted by the rules of Nasdaq.
−Removed: Accordingly, our stockholders generally do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.
−Removed: As of August 5, 2021, Carlyle Group Management L.L.C.’s ownership of our common stock decreased below 50% of our outstanding common stock and, as of such date, we ceased to be a “controlled company” under Nasdaq rules.
−Removed: However, even though we are not a "controlled company," we will continue to be able to rely on certain of the foregoing exemptions from certain corporate governance requirements during a one-year transition period.
−Removed: The Nasdaq rules require that our Board be composed of a majority of "independent directors", as defined under the rules of Nasdaq, and that our compensation committee and our nominating and corporate governance committee consist entirely of independent directors, by August 5, 2022.
−Removed: If we fail to meet the above deadlines for these requirements, our common stock could be delisted from Nasdaq, which would negatively impact the trading of our common shares and our business and financial condition.
−Removed: In addition, as we transition to a non-controlled company, we may incur additional corporate governance and other compliance costs, including increased director compensation for additional independent directors and expanded governance committees.
Our founders have the right to designate members of our Board of Directors.
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In addition, each founder will have the right to nominate a second director to our Board of Directors until the earlier of (x) such time as such founder and/or his Founder Group ceases to beneficially own at least 20 million shares of our common stock and (y) January 1, 2027.
−Removed: For so long as at least one founder is entitled to designate two directors to the board, the founders then serving on our Board of Directors may (i) designate a founder to serve as chair or co-chair and (ii) designate a founder to serve on each of the compensation and nominating committees and any executive committee, subject to applicable law and listing standards.
−Removed: Accordingly, for such period of time, our founders will have significant influence over the composition of our board and could prevent certain changes in the composition of our Board of Directors.
−Removed: Our certificate of incorporation will not limit the ability of our former general partner, founders, directors, officers or stockholders to compete with us.
+Added: For so long as at least one founder is entitled to designate two directors to the Board of Directors, the founders then serving on our Board of Directors may (i) designate a founder to serve as chair or co-chair and (ii) designate a founder to serve on each of the compensation and nominating committees and any executive committee, subject to applicable law and listing standards.
+Added: Accordingly, for such period of time, our founders will have significant influence over the composition of our Board of Directors and could prevent certain changes in the composition of our Board of Directors.
+Added: Our certificate of incorporation does not limit the ability of our former general partner, founders, directors, officers or stockholders to compete with us.
Our certificate of incorporation provides that none of Carlyle Group Management L.L.C., any person that controls Carlyle Group Management L.L.C., and our founders, directors and officers and stockholders will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate.
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In addition, these persons may have an interest in our pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to our common stockholders.
−Removed: Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.
+Added: Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that stockholders might consider favorable.
Our certificate of incorporation and bylaws contain provisions that may make the merger or acquisition of our company more difficult without the approval of our Board of Directors.
Among other things, these provisions:
−Removed: • provide that our Board of Directors will be divided into three classes, as nearly equal in size as possible, which directors in each class serving three-year terms and with terms of the directors of only one class expiring in any given year;
+Added: • provide that our Board of Directors will be divided into three classes, as nearly equal in size as possible, with directors in each class serving three-year terms and with terms of the directors of only one class expiring in any given year (although it is anticipated that a management proposal to reorganize the Board of Directors into one class will be voted on by stockholders at the Company’s 2023 Annual Meeting of Stockholders);
• provide for the removal of directors only for cause;
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• provide (i) that the Board of Directors is expressly authorized to make, alter, or repeal our bylaws and (ii) that our stockholders may only amend our bylaws with the approval of at least a majority of all of the outstanding shares of our capital stock entitled to vote;
−Removed: • establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
−Removed: Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impede or discourage a takeover attempt that our stockholders may find beneficial.
+Added: • establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
+Added: Moreover, as a Delaware corporation, we are subject to provisions of Delaware law, which may impede or discourage a takeover attempt that our stockholders may find beneficial.
These anti-takeover provisions and other provisions under Delaware law, our stockholder agreements with our founders and proxy held by Carlyle Group Management L.L.C.
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in its wholly owned subsidiaries or the general partner interests of these wholly owned subsidiaries in the Carlyle Holdings partnerships are investment securities.
−Removed: Moreover, because we believe that the capital interests of the general partners of our funds in their respective funds are neither securities nor investment securities, we believe
−Removed: that less than 40% of The Carlyle Group Inc.’s total assets (exclusive of U.S.
+Added: Moreover, because we believe that the capital interests of the general partners of our funds in their respective funds are neither securities nor investment securities, we believe that less than 40% of The Carlyle Group Inc.’s total assets (exclusive of U.S.
government securities and cash items) on an unconsolidated basis are composed of assets that could be considered investment securities.
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will not be deemed to be an investment company under the Investment Company Act.
−Removed: If anything were to happen which would cause The Carlyle Group Inc.
+Added: If anything were to happen that would cause The Carlyle Group Inc.
to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on our capital structure, ability to transact business with affiliates (including us) and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among The Carlyle Group Inc.
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Under applicable U.S.
−Removed: GAAP standards, we may be required to consolidate certain of our investment funds, holding companies or operating businesses if we determine that these entities are VIEs and that we are the primary beneficiary of the VIE, as discussed in Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.
+Added: GAAP standards, we may be required to consolidate certain of our investment funds, holding companies or operating businesses if we determine that these entities are VIEs and that we are the primary beneficiary of the VIE, as discussed in Note 3 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
The consolidation of such entities could make it difficult for an investor to differentiate our assets, liabilities, and results of operations apart from the assets, liabilities, and results of operations of the consolidated VIEs.
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As of December 31, 2022, the total assets and liabilities of the consolidated VIEs reflected in the consolidated balance sheets were $7.2 billion and $6.2 billion, respectively.
−Removed: As a public entity, we are subject to the reporting requirements of the Exchange Act, as amended, and requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).
−Removed: The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition, and provide an annual assessment of the effectiveness of our internal control over financial reporting.
−Removed: The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting.
−Removed: In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting as required by the Exchange Act, significant resources and management oversight are required.
−Removed: We have implemented procedures and processes for the purpose of addressing the standards and requirements applicable to public companies.
−Removed: The VIEs that we consolidate as the primary beneficiary are, subject to certain transition guidelines, included in our annual assessment of the effectiveness of our internal control over financial reporting under the Sarbanes-Oxley Act.
−Removed: As a result, we will need to continue to implement and oversee procedures and processes to integrate such operations into our internal control structure.
−Removed: If we are not able to implement or maintain the necessary procedures and processes, we may be unable to report our financial information on a timely or accurate basis and could be subject adverse consequences, including sanctions by the SEC or violations of applicable Nasdaq listing rules, and could result in a breach of the covenants under the agreements governing our financing arrangements.
−Removed: There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.
Risks Related to Taxation
−Removed: Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could negatively impact our effective tax rate and tax liability.
+Added: Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could negatively impact our effective tax rate, tax liability and/or the performance of certain funds should unexpected taxes be assessed to portfolio investments (companies) or fund income.
Our effective tax rate and tax liability is based on the application of current income tax laws, regulations and treaties.
−Removed: These laws, regulations and treaties are complex, and the manner which they apply to us and our funds is sometimes open to interpretation.
+Added: These laws, regulations and treaties are complex, and the manner that they apply to us and our funds is sometimes open to interpretation.
Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
−Removed: Although management believes its application of current laws, regulations and treaties to be correct and sustainable upon examination by the tax authorities, the
−Removed: tax authorities could challenge our interpretation, resulting in additional tax liability or adjustment to our income tax provision that could increase our effective tax rate.
+Added: Although management believes its application of current laws, regulations and treaties to be correct and sustainable upon examination by the tax authorities, the tax authorities could challenge our interpretation, resulting in additional tax liability or adjustment to our income tax provision that could increase our effective tax rate.
There may be changes in tax laws or interpretations of tax laws (possibly with retrospective effect) in jurisdictions in which we operate, are managed, are advised, are promoted or invest.
+Added: Such changes could materially increase the amount of taxes, we, our portfolio companies, our investors, or our employees and other key personnel and service providers are required to pay.
In particular, both the level and basis of taxation may change.
Changes to taxation treaties or interpretations of taxation treaties between one or more such jurisdictions and the countries through which we hold investments, or the introduction of, or change to, EU directives may adversely affect our ability to efficiently realize income or capital gains and to efficiently repatriate income and capital gains from the jurisdictions in which they arise.
−Removed: Furthermore, the COVID-19 pandemic could prompt governments to increase taxes to fund relief measures, and/or assert taxing jurisdiction on account of remote working conditions.
+Added: Moreover, the COVID-19 pandemic could prompt governments to increase taxes to fund relief measures, and/or assert taxing jurisdiction on account of remote working conditions, as discussed below.
Consequently, it is possible that we may face unfavorable tax treatment that may materially adversely affect the value of our investments or the feasibility of making investments in certain countries.
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taxation of earnings from international operations (including through an expanded definition of “controlled foreign corporations,” introduction of a minimum tax on “global intangible low-taxed income” (“GILTI”), and changes to the creditability of foreign taxes).
+Added: Final foreign tax credit regulations published on January 4, 2022, which are part of a series of foreign tax credit regulations issued since the enactment of the TCJA, introduce significant fundamental changes to the definition of what is considered a creditable foreign income tax, including an attribution requirement, which could have an adverse impact on us, our portfolio companies, and/or our investors.
Further, foreign, state and local governments may enact tax laws in response to the TCJA that could result in further changes to foreign, state and local taxation and have a material adverse effect on our results of operations, financial condition and cash flow.
−Removed: The 2020 U.S.
−Removed: presidential and congressional elections (and future elections) could result in additional fundamental changes in tax law and regulations.
−Removed: While the likelihood and nature of any such legislation or regulations going into effect is uncertain, the U.S.
−Removed: Congress and the Biden administration have proposed and may pursue tax policy changes.
−Removed: For example, the proposed legislation in the Build Back Better Act, which was passed by the U.S.
−Removed: House of Representatives on November 19, 2021, would impose a 15% minimum tax on book income for corporations with profits over $1 billion, change the GILTI and foreign tax credit regimes, impose a 1% excise tax on certain stock repurchases, further limit compensation deductions under Section 162(m) of the Code, reduce the deduction for “foreign-derived intangible income,” and create a new limitation on interest deductions, among other things.
−Removed: Any such tax changes could materially increase the amount of taxes we, our portfolio companies, our investors, or our employees and other key personnel would be required to pay.
+Added: In addition, the Inflation Reduction Act of 2022 (the “IRA”) introduced a 15% alternative minimum tax on the “adjusted financial statement income” of certain large corporations and a 1% excise tax on certain actual and deemed stock repurchases, both of which become effective in 2023.
+Added: We expect to be an applicable corporation that is subject to the alternative minimum tax, as well as a covered corporation that could be subject to the 1% excise tax.
+Added: The alternative minimum tax in particular requires complex computations to be performed that were not previously required in U.S.
+Added: tax law, significant judgments to be made in interpretation of the provisions of the IRA, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced.
+Added: Department of the Treasury, the IRS, and other standard-setting bodies are expected to issue guidance on how the alternative minimum tax provisions of the IRA will be applied or otherwise administered that may differ from our interpretations.
+Added: As we complete our analysis of the IRA, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period in which adjustments are made.
+Added: State and local governments may propose new legislation that if passed could result in fundamental changes in state and local tax law and regulations, which may have a material impact on the amount of taxes we are required to pay.
+Added: In particular, both the level and basis of taxation may change.
+Added: For example, the State of New York has issued draft regulations that, if enacted in current form, could negatively impact certain corporate managers of investments funds by sourcing more of their management or advisory fee income to New York state.
+Added: We have not yet determined the effect of these draft regulations on our tax provision.
+Added: During the COVID-19 pandemic, many countries relaxed the application of existing tax rules applying to remote working.
+Added: Governments, along with the EU and the Organisation for Economic Co-operation and Development (the “OECD”), are now renewing their focus in this area, in many cases ending concessionary treatment that they applied during the pandemic, and with the potential for taxing jurisdiction to be asserted in circumstances where this would not historically have been the case.
+Added: In particular, some countries are implementing, or considering implementing, new legislation relating to remote working.
+Added: Our employees and other key personnel and service providers remain more diversely located than before the pandemic, and developments in this area could potentially lead to increased tax and compliance costs, including as result of increased payroll tax and social security costs for our entities, and our entities being subject to tax in jurisdictions where they are not currently considered to have a taxable presence.
+Added: If our employees or other key personnel and service providers bear increased tax costs, or if we need to take a stricter approach on working practices, this may also affect our ability to retain such individuals.
International tax developments may also significantly impact us.
−Removed: Pursuant to the Organisation for Economic Co-operation and Development’s (the “OECD”) base erosion and profit shifting (“BEPS”) Project, many individual jurisdictions have introduced domestic legislation implementing certain of the BEPS action points.
+Added: Pursuant to the OECD’s base erosion and profit shifting (“BEPS”) Project, many individual jurisdictions have introduced domestic legislation implementing certain of the
+Added: BEPS action points.
Several of the areas of tax law (including double taxation treaties) on which the BEPS Project focuses are relevant to our ability to efficiently realize income or capital gains and to efficiently repatriate income and capital gains from the jurisdictions in which they arise and, depending on the extent to and manner in which relevant jurisdictions have implemented (or implement, as the case may be) changes in those areas of tax law (including double taxation treaties), our ability to do those things may be adversely impacted.
−Removed: Many of the jurisdictions in which we will make investments have now ratified, accepted and approved the OECD’s Multilateral Instrument which brings into force a number of relevant changes to double tax treaties within scope.
+Added: Many of the jurisdictions in which we have made (or will make) investments have now ratified, accepted and approved the OECD’s Multilateral Instrument that brings into force a number of relevant changes to double tax treaties within scope.
While these changes continue to be introduced, there remains uncertainty as to whether and, if so, to what extent we may benefit from the protections afforded by such treaties and whether our funds may look to their partners in order to derive tax treaty or other benefits.
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The most recent provisions of the ATAD rules to come into effect were rules targeting reverse hybrids, which generally apply from January 1, 2022.
−Removed: The ATAD rules and the domestic laws which implement them are extensive, complex and could apply to a wide range of scenarios.
−Removed: We are also still waiting for the issuance of guidance from several countries.
+Added: The ATAD rules and the domestic laws that implement them are extensive, complex and could apply to a wide range of scenarios.
+Added: While certain countries have issued guidance on the application of these rules, we are still waiting for the issuance of guidance from several other countries and at this stage, the impact of the ATAD rules and their application to our entities remains uncertain.
These rules could have an adverse tax impact on our firm, funds, investors and/or our portfolio companies.
−Removed: On December 22, 2021, the European Commission issued a proposal for a Council Directive laying down rules to prevent the misuse of shell entities for tax purposes within the EU (the “Unshell Proposal”).
−Removed: While the Unshell Proposal is expected to be adopted and published into EU member states’ national laws by 30 June 2023, and to come into effect as of 1 January 2024, there is considerable uncertainty surrounding the development of the proposal and its implementation.
−Removed: proposal could result in additional tax costs and/or reporting and disclosure obligations (which could result in increased administrative and compliance costs) for our entities.
−Removed: The OECD is also working on proposals, commonly referred to as “BEPS 2.0”, which, if implemented, would fundamentally change the international tax system.
+Added: Moreover, a number of further proposals from the European Commission have or are expected to be issued shortly that further enhance and move beyond the work on the BEPS Project, including, but not limited to, the proposal issued on December 22, 2021, for a Council Directive to further extend the scope of the ATAD rules.
+Added: This proposal calls for provisions to prevent the misuse of shell entities for tax purposes within the EU (the “Unshell Proposal”).
+Added: In addition, a proposal published on May 11, 2022, for a Council Directive seeks to reduce the difference in tax treatment between equity and debt financing (the “Debt-Equity Bias Reduction Allowance” or the “DEBRA Proposal”).
+Added: There is considerable uncertainty surrounding the development and implementation of these proposals (including as a result of a series of non-binding amendments put forward by the European Parliament during 2022 in respect of the Unshell Proposal).
+Added: If implemented, the proposals could, among other things, impose additional taxes on our entities (including by imposing additional limitations on the deductibility of interest payments) and/or impact our ability to repatriate investment returns and/or international profits in a tax efficient way resulting in additional tax costs and/or reporting, disclosure and computation obligations (which could result in increased administrative and compliance costs) for our entities.
+Added: The OECD is also leading work on proposals, commonly referred to as “BEPS 2.0,” which, if implemented, would fundamentally change the international tax system.
The proposals are based on two “pillars” involving the reallocation of taxing rights (“Pillar One”) and a new global minimum corporate tax rate (“Pillar Two”).
−Removed: Under Pillar One, multinational enterprises (“MNEs”) with an annual global turnover of at least EUR 20 billion will be subject to rules allocating 25% of profits in excess of a 10% profit margin to the jurisdictions within which they carry on business (subject to threshold rules).
−Removed: MNEs carrying on specific low-risk activities are excluded, including “regulated financial services” (yet to be defined).
+Added: Under Pillar One, multinational enterprises (“MNEs”) with an annual global turnover of at least EUR 20 billion (although this turnover threshold may potentially be reduced in the future) will be subject to rules allocating 25% of profits in excess of a 10% profit margin to the jurisdictions within which they carry on business (subject to threshold rules).
+Added: MNEs carrying on specific low-risk activities are excluded, including “regulated financial services” (although the scope of this exclusion has not yet been confirmed).
Pillar Two imposes a minimum effective tax rate of 15% on MNEs that have consolidated revenues of at least EUR 750 million in at least two out of the last four years.
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the income inclusion rule (“IIR”) imposes a top up tax on a parent entity where a constituent member of the MNE group has low-taxed income, while the undertaxed payment rule (“UTPR”) applies to intra-group payments if the constituent member’s income is not taxed by an IIR.
−Removed: Additionally, a subject to tax rule (“STTR”) will permit source jurisdictions to impose limited withholding taxes on low-taxed related party payments, which will be creditable against the GloBE rules tax liability.
−Removed: Specified classes of entities which are typically exempt from tax are outside the scope of Pillar Two, including investment funds and real estate investment vehicles (as respectively defined) which are the ultimate parent entity of the MNE group (and certain holding vehicles of such entities).
−Removed: The implementation of the Pillar One and Pillar Two proposals is scheduled for 2023, with the UTPR coming into effect in 2024.
−Removed: On December 20, 2021, the OECD released Pillar Two model rules providing a template for jurisdictions to translate the GloBE rules into domestic law (and in this respect the EU Commission, on December 22, 2021, issued a proposal for a Council Directive on ensuring a global minimum level of taxation for multinational groups in the EU), although much more detail (including implementation details on Pillar One) is still awaited.
−Removed: Subject to the development and implementation of both Pillar One and Pillar Two (including the related EU Council Directive proposal and the details of any domestic legislation, double taxation treaty amendments and multilateral agreements which are necessary to implement them), effective tax rates could increase for our firm, funds, portfolio companies and investors.Tax laws, regulations or treaties newly enacted or enacted in the future may cause us to revalue our net deferred tax assets and have a material change to our effective tax rate and tax liabilities.
−Removed: The Netherlands continued to provide additional updates to its withholding tax on dividends.
−Removed: Following EU case law, three safe harbor rules currently embedded in domestic anti-abuse rules as part of the Dividend Withholding Tax Act and the Corporate Income Tax Act will no longer function as a safe harbor rule.
−Removed: Conditional withholding tax on dividends will be introduced as of 2024.
+Added: In addition, a subject to tax rule (“STTR”) will permit source jurisdictions to impose limited withholding taxes on low-taxed related party payments, which will be creditable against the GloBE rules tax liability.
+Added: The proposals are complex and subject to significant uncertainty, consultation in respect of certain aspects of the rules is ongoing and we await further guidance from the OECD.
+Added: It is anticipated that certain classes of entities that are typically exempt from tax will be outside of the scope of Pillar Two, including investment funds and real estate investment vehicles (as respectively defined), which are the ultimate parent entity of the MNE group (and certain holding vehicles of such entities);
+Added: however, the application of these exemptions to our entities remains open to significant uncertainty.
+Added: Although the implementation of the Pillar One and Pillar Two proposals is scheduled for 2024, important details, in particular on the implementation of Pillar One, are still awaited.
+Added: On December 20, 2021, the OECD released Pillar Two model rules providing a template for jurisdictions to translate the GloBE rules into domestic law.
+Added: On December 15, 2022, the EU adopted a Council Directive that requires certain GloBE rules to be transposed into EU member states’ national laws by
+Added: December 31, 2023, and a number of other countries, including the U.K., are currently proposing to implement core elements of the Pillar Two proposal with effect from the start of 2024.
+Added: In addition, South Korea has enacted Pillar Two global minimum tax rules into its domestic legislation, with effect from the start of 2024.
+Added: It is likely that many other countries will also seek to implement their own domestic minimum tax proposals as well as potentially digital services taxes.
+Added: There remains significant uncertainty as to the interaction of these rules and, subject to the development and implementation of both Pillar One and Pillar Two (including the details of any domestic legislation, double taxation treaty amendments and multilateral agreements that may be necessary to implement them), effective tax rates could increase for our firm, funds, portfolio companies and investors, and it is likely that our entities will be subject to significant additional compliance and/or reporting obligations.
+Added: Any tax laws, regulations or treaties newly enacted or enacted in the future may also cause us to revalue our net deferred tax assets and have a material change to our effective tax rate and tax liabilities, as a result.
+Added: Moreover, the Netherlands continued to provide additional updates to its withholding tax on dividends.
+Added: As of January 1, 2024, dividend distributions made by Dutch companies to “associated beneficiaries” established in blacklisted jurisdictions and to “associated beneficiaries” established in non-blacklisted jurisdictions in case of situations that are deemed to be “abusive” may be subject to a conditional withholding tax.
+Added: The applicable tax rate is linked to the highest corporate income tax in the relevant year (being 25.8% in 2023).
A draft bill, including amendments, on a proposed dividend withholding tax exit charge has been presented to parliament.
−Removed: If the bill is accepted, it would be retroactively effective December 8, 2021.
−Removed: We are evaluating and monitoring the impact of these changes which could result in additional withholding on certain payments for us and our investment funds.
+Added: If the bill is accepted, it would be retroactively effective as of December 8, 2021.
+Added: We are evaluating and monitoring the impact of these changes, which could result in additional withholding taxes being levied on our investment funds or on repatriation of income and gains generated.
and foreign tax regulations could adversely affect our ability to raise funds from certain foreign investors and increase compliance costs.
−Removed: Under the U.S.
−Removed: Foreign Account Tax Compliance Act (“FATCA”), U.S.
−Removed: withholding agents and all entities in a broadly defined class of foreign financial institutions (“FFIs”) are required to comply with a complicated and expansive reporting regime or be subject to certain U.S.
−Removed: withholding taxes.
−Removed: In connection with this law, various foreign governments have entered into intergovernmental agreements (“IGAs”) with the U.S.
−Removed: The reporting obligations imposed under FATCA require FFIs to enter into agreements with the IRS to perform due diligence and to report information about certain account holders and investors to the IRS (or in the case of certain FFIs that are resident in a jurisdiction that has entered into an IGA to implement this legislation, to comply with the diligence and reporting obligations of such IGA).
−Removed: Additionally, certain non-U.S.
−Removed: entities that are not FFIs are required to either certify they have no substantial U.S.
−Removed: beneficial ownership or report certain information with respect to their substantial U.S.
−Removed: beneficial ownership.
−Removed: Failure to comply with these requirements could expose us and/or our investors to a 30% withholding tax on certain U.S.
−Removed: payments and possibly limit our ability to open bank accounts and secure funding in the global capital markets.
−Removed: The administrative and economic costs of compliance with FATCA may discourage some foreign investors from investing in U.S.
−Removed: funds, which could adversely affect our ability to raise funds from these investors.
−Removed: Other countries, such as Luxembourg, the United Kingdom and the Cayman Islands, have implemented and are participating in a multi-jurisdictional regime known as the Common Reporting Standard (“CRS”), which is similar to that of FATCA (without the withholding requirement), and in some cases, have imposed penalties on non-compliant institutions.
−Removed: Rules have been and continue to be introduced (in particular pursuant to the EU “Directive on Administrative Co-Operation, or “DAC6”, and the OECD’s model Mandatory Disclosure Rules) which require the reporting to tax authorities of information about certain types of arrangement, including arrangements which may circumvent the CRS.
−Removed: Compliance under these and
−Removed: similar regimes as described above could result in increased administrative and compliance costs for our investment entities and, in some cases, could subject our investment entities to increased withholding taxes.
−Removed: We expect to pay more corporate income taxes than we would have as a limited partnership prior to the Conversion.
−Removed: Our Conversion was effective on January 1, 2020.
−Removed: Following the Conversion, all of the net income attributable to The Carlyle Group Inc.
−Removed: is subject to U.S.
−Removed: federal (and state and local) corporate income taxes, which we anticipate will continue to have a dilutive impact to Distributable Earnings per share of common stock and net income and reduce the amount of cash available for dividends to our common stockholders.
−Removed: Prior to the Conversion, only a portion of the income attributable to us was subject to U.S.
−Removed: federal, state and local corporation income taxes.
−Removed: The additional corporate income tax we pay as a result of the Conversion could grow if currently enacted corporate tax rates increase or changes to tax law otherwise cause us to pay more corporate income taxes.
−Removed: UNRESOLVED STAFF COMMENTS
−Removed: Our principal executive offices are located in leased office space at 1001 Pennsylvania Avenue, NW, Washington, D.C.
−Removed: We also lease the space for our other 25 offices.
−Removed: We do not own any real property.
−Removed: We consider these facilities to be suitable and adequate for the management and operation of our business.
+Added: We must comply with complicated and expansive information tax reporting regimes in multiple jurisdictions, which require us to perform due diligence and to report information about certain account holders and investors.
+Added: Failure to comply with these requirements could result in increased administrative and compliance costs for our investment entities and, in some cases, could sub
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.